Tax Q&A Time

This was a great question I think a lot of us will learn from:

I lost my job 12-31-08 with my income greatly reduced I fell behind on some loans auto and credit cards I was told by two different companies that my failure to pay these loans would result with them sending a 1099 to the irs as well as me indicating that loans were taxable income. can they legally do this and is it actually reportable income?

The answer is yes it is legal and no one tells anyone about this until they get the 1099.  When you are negotiating your reduction on your loans and credit cards you think great I have just paid off for less than I owed.  But, wham! now you owe taxes on the amount you did not pay and for someone that is already in financial straits this can put you over the top. 

Again this a good time to visit your tax planner before you make these choices to see how it is going to affect your entire financial picture.

You're never anonymous

This shouldn't come as much of a surprise but in case you live under a rock, the IRS is using social networking to catch tax evaders.  Thanks to some people's errant Facebook, MySpace and Twitter updates, the IRS has tracked down some tax evaders.
They're mining through posted information such as relocation announcements, professional profiles and financial gains.  Agents at the IRS have been able to collect all sorts of bucks from would-be tax dodgers.  One Nebraska agent was able to collect $2,000 from a disc jockey after he advertised on MySpace that he’d be working at a big public party.

"These new supplements are often far more efficient than the older ones, such as reading the local newspaper or making inquiries at barbershops and church meetings," said Jim Eads, director of the Federation of Tax Administrators. Another agent was able to collect $30,000 of unpaid taxes after a Google search lead him directly to his target.

So, if you’re the type of person that likes to boast about income that hasn’t been reported on Twitter or any status updates you have, think twice. The IRS could be, and probably is, watching.

Oh my how I procrastinate!

The holidays got the best of me but here I am right on time because we all know, as soon as the ball drops, it's time to start getting those deductions and tax plans in order!

We had Free Money Part 1 and Free Money Part 2.  Here are the final two tips:

#10 - The best way to save tax dollars is to reduce your income before you pay taxes. So how about getting a miscellaneous fringe benefit from your employer instead of cash? Often an employee wants that green stuff that they often miss the bigger picture.

Not sure what I'm trying to say? Let me explain: You get your paycheck after paying all of your taxes or so to get to work every day you must ride a bus so you buy a pass for $120 dollars a month. Now instead of that let's have your employer give you a discount fare card up to $120 a month.  This is considered a de minimis fringe benefit plan (it's tax free) so not only do you get this for free but it does not show up as income so you are keeping more of your paycheck in your pocket.


#11 - Free Money isn’t always about what you can get for yourself but what you can give to someone else and in return you pay less in taxes therefore you put more money in your pocket. Gifts, Bequests and inheritances do not constitute taxable income but any money you earn from that money is taxable so one way to reduce those taxes is to give some of those earnings to a charity then that will reduce your income and your taxes. Sometimes to give you actual get and this is one of those times. This is also a great way for anyone that itemizes to reduce their taxes.  Just be sure you document what you're giving and if you are using an IRA or some other retirement account have them send the check directly to the organization then you avoid taxes on those distributions.

I do encourage you to always check with your tax planner to be sure you are keeping all or as much as you can of your hard earned money. 

Have a safe, happy new year, and I hope this helps you with reducing your taxes for 2009!

More Free Money Tips Part 2

Consider this my Christmas present to you! Picking up where we left off last time...

 - Group Life Insurance
Group term life insurance coverage $50000 or less provided to you by your employer is excludable from your income. You are not taxed on the cost of group term life insurance protection of more than $50000 if the coverage is provided after you have retired and are disabled, Your employer is the beneficiary of the policy for the entire period or the only beneficiary of the amount over $50000.00 is a qualified charitable organization for the entire period the insurance is in force during the tax year by naming a charitable organization as the beneficiary of the policy.

 - With the holidays coming how about making your employee really happy by giving them FREE MONEY that’s right I know too good to be true but you can give your employees a distribution that is excludable from their income if it is not of substantial value and is given for substantially non compensation reasons. So the IRS policy allows you to give each employee up to two non-cash gifts per year, tax-free, for a special occasion Gifts up to $500 per employee so think outside of the box cash isn’t everything and you can sure enjoy thing just as much as money especially when it is FREE.

Also think about setting up awards, be sure all employees can participate the IRS policy is the cost of the awards to $500, including taxes Awards up to $500 per employee.

- Which brings us to Employee Awards/ Achievement Awards

This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. For this exclusion, treat the following individuals as employees: 

• A current employee.
• A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee.
• A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.

In addition, the pay must meet both of the following tests.

Test 1. It must be reasonable.

• The duties performed by the employee.
• The volume of business handled.
• The character and amount of responsibility.
• The complexities of your business.
• The amount of time required.
• The cost of living in the locality.
• The ability and achievements of the individual employee performing the service.
• The pay compared with the gross and net income of the business, as well as with distributions to shareholders if the business is a corporation.
• Your policy regarding pay for all your employees.
• The history of pay for each employee.

Test 2. It must be for services performed.

• Achievement awards. .
• Length-of-service award. An award will qualify as a length-of-service award only
• Safety achievement award.

- EXPENSES of YOUR Employer
The IRS does not tax reimbursement expenses that are true reimbursements for expenses you paid on behalf of your employer. The IRS recognizes the impossible administrative verification problems in auditing such expenses. For whatever reasons, therefore, they are nontaxable. So here is an example let’s say your employer arranges for you to work from 11am to 7pm instead of 9 to 5 and your boss agrees to provide you with dinner money, these personal supper expenses therefore can be converted into nontaxable income. In effect, no matter what tax bracket you are in. you have arranged for the irs to buy you dinner.

Check back, I'll have the rest of the tips for you before Christmas hits!

Free Money - Part 1 of 16

Hope you all have been enjoying the Free Money tips I've been sharing on the radio!  In case you missed them, I'm going to be transcribing those great tidbits on here.  Let's kick this off with #1 - Hospitalization Premiums:

Hospitalization premiums paid by your employer are excludable from your income. For example if you normally would purchase hospitalization insurance costing $500 a year and you are in the 28% tax bracket, you would require pretax earnings of $694.44 in order to make that purchase. Which means you your have to earn $694.44, and 28% or 194.44 would go to your taxes. In other words having your employer pay your hospitalization premium in the case $500 for you would be saving 194.44.

Now that’s FREE MONEY

Check back soon, we'll have the rest of them up before the holidays so you can settle your tax prep with ease!

Quick update

It's been quite the whirlwind in the past couple of months - finishing up business tax filing back in September where my clients had originally filed for extensions in April and same for the ones I help file personal taxes (deadline October 15th).  Luckily WilliamsX3 is efficient and quick (precise) turnaround is easy peasy.

Both radio shows are going really well, Hank and I have been getting a lot of good response on the Financial Lifestyle Show.  And hey, if you haven't caught the live episodes you can find the podcasts here.  

I stumbled upon a lovely site called Design*Sponge where they feature a women's business (Biz Ladies, if you will) segment each week.  It's really wonderful stuff, great tips for entrepreneurs and creative types and even though it's geared towards us girls, I really think it's worth checking out regardless of which gender you are.  The topic I chose to weigh in on was on Tax Info for Small Business.  Highly recommend it.

This November, I start a series on WLAC News Radio 1510AM.  It's called "Free Money" and I know you're going to like what I have to share.  Just a sneak peek for now, I'll be giving you some tips on how you can get some free $$ when it comes to selling your home, work expenses, hospitalization premiums, and separations/divorces.  You're not going to want to miss this.

Check back soon, I'll have the first installment of Free Money for you. Cop ya later!

Taxes - it's not just for the rich.

People who are for tax think that the death tax is a great source of revenue for the government because this tax allegedly applies only to the rich.  Inheritance or money passed from one party to another - proponents of raising taxes say this money should be taxed, just like income or taxable gifts.


But what is inheritance tax? Why is there a tax on death? And how does this "death tax" work?


The inheritance tax rate depends primarily on the type of property being inherited and the relationship of the heir to the deceased.  For example, when Mr. Smith dies, he leaves his mansion and fortune to his children, his fancy car collection to his brother Ralph and his yacht to his old fishing buddy Terence.  Usually, each child must pay taxes on what he or she inherits.  That's what we already know about inheritance.


Ralph must also pay taxes on the car collection.  He will probably be taxed at a higher rate than Mr. Smith's children because he is neither a child nor parent of the deceased.  Non-lineal heirs are generally subject to higher inheritance taxes.  Since Terence is not at all related to Mr. Smith, he will be subject to the highest taxes.


Just because you inherit money doesn’t mean you’re rich but it does mean the government could take almost half of your inheritance.  They say they are taxing the rich, but they are really taxing everyone. The government saw a chance to get their hands on your family's dynasty, they are taxing your inheritance because they feel you are getting more than you need.  That’s right, rich or poor they really do not care - it’s all about how much money they can get so they can keep spending. 

Tell me, what is your opinion on the inheritance tax?