IRS TAX RESOLUTION

One of the most popular questions people ask regarding taxes is, “what tax bracket am I in?” While the question is certainly important and relevant, the more significant question is “what is my marginal tax rate?”

The Difference Between Gross and Taxable

There is a big difference between your gross income and taxable income – something that many people don’t realize. It’s only after you learn to differentiate and discover what income you actually owe taxes on that you can begin to uncover your marginal tax rate. Let’s take a look at each independently before connecting the dots:

• Gross income. According to the IRS, your gross income is the amount of income you receive in the form of money, services, property, and goods that is not exempt from taxation. Underneath the heading of gross income are things like wages, investment gains or losses, business gains or losses, and unemployment compensation. Your gross income from any given year can be found on your income section’s last line on Form 1040.

• Taxable income. For most individuals, the taxable income is significantly lower than the gross income. While it is possible for it to be the same as the gross, it can never be higher. That’s because your taxable income is a segment of your gross income. Also referred to as the taxable portion, it is your total income minus deductions and exemptions. These may include charitable donations, retirement account deductions, and other select investments.

In summary, gross income is the sum of your entire income for a single year. It does not account for deductions. Your taxable income takes your gross income and subtracts all deductions. The final figure is the amount on which you can be taxed.

Choosing How to File

Another major factor playing into which tax bracket you fall in and how much you owe is how you choose to file. The five official filing statuses are Single, Married, Married Filing separately, Head of Household, and Qualified Widow(er).

• Single. If you are unmarried, divorced, or legally separated by the last day of the tax year, you can file under “single.”

• Married. This status is reserved for married couples that plan on filing taxes jointly. In doing this, you combine both incomes to determine the applicable bracket.

• Married Filing Separately. It’s not always practical or advantageous to file together.  If you decided to do your taxes separately, this is the filing status to use.

• Head of Household. This filing status is for individuals that are unmarried and have at least one dependent living at home. It’s also possible to file as the head of household if you have at least one dependent and your spouse didn’t live with you for the final six months of the tax year

• Qualified Widow(er). If your spouse died in the past tax year, you filed jointly the year before, and you have at least one dependent, you can file under this status.

Finding Your Tax Bracket

Once you’ve determined your gross income and taxable portion, it’s time to determine your IRS filing status. For 2015 tax rates and brackets you can check out the charts found here. There are also a number of automated calculator tools online that can help you estimate and project which category you may fall under.

As brackets – and not rates – move upward, taxpayers can expect a little bit of relief over previous years. According to George Farrah, the Executive Editor of BNA Tax & Accounting, “The good news is that people whose income is the same compared to last year may enjoy a lower effective tax rate – and a lower tax bill – because of the inflation adjustments.”

For 2015, personal exemptions are expected to be up to $4,000 (from $3,950 this year). It’s also important to note that the personal exemption deduction is now phased out for high-income taxpayers. Standard deduction numbers should look something like this:

• Single — $6,300
• Married Filing Jointly — $12,600
• Married Filing Separately — $6,300
• Head of Household — $9,250
• Surviving Spouse — $12,600

How to Keep More of Your Money

While you hopefully have a slightly better understanding of how to determine – or at least estimate – your tax bracket, it doesn’t mean paying your taxes is easy. Regardless of how much time and effort you put into it, there are always things you’ll overlook or miss on your own. However, with the help of a tax professional, you can ensure you pay the lowest taxes and keep more of your money. Every penny you spend on a tax professional will be returned to you multiple times over.

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For those who are stressed about taxes, records, returns, and other related documents, you can find solace in the fact that you are not alone. There is much confusion related to taxes and especially how to appropriately organize, file, and keep important documents. Thankfully, though, it can be simple and easy if you know what you’re doing. Let’s investigate some typical questions and provide clarity on these issues.

How Long Do I Need to Keep Tax Returns and Records?

The question regarding how long to keep tax records is so popular that the IRS dedicates an entire webpage to the issue. According to IRS.gov, “The length of time you should keep a document depends on the action, expense, or event the document records.” In general terms, this means keeping the appropriate documentation until the period of limitations for that item of income or deduction runs out. This is the time period in which the IRS can assess additional tax and you are able to amend your returns.

While every situation is unique, there are some general circumstances under which you definitely need to keep your tax returns. These include the following:

• When you owe additional taxes, it’s a good idea to keep records for three years.

• When you don’t report income that should have been reported – and it accounts for 25{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} of your gross income – you should keep records for six years.

• If you file a fraudulent return, records should be kept indefinitely.

• If you fail to file a return, records should be kept indefinitely.

• Records regarding a filed claim for a loss on worthless securities or bad debt deduction should be kept for seven years.

• All employment tax records should be kept for at least four years after the tax is paid or due (whichever is later).

• When filing for a credit or refund after filing your initial return, you should keep records for three years after you filed the original return.

As a general rule of thumb, always ask yourself whether the documentation you are considering throwing away is connected to your assets or tax returns in any way. If it could be used to explain tax debt or liability, it should be saved until the appropriate statute of limitations expires.

Are There Any Tips for Organizing Past Tax Records?

People often ask about the best way to store, file, and organize old tax records. While it is completely up to you, there are some proven ways to stay on top of everything. First, it’s ideal to keep physical paper documents in a safe, dry place that cannot be contaminated by water. Each tax return should be put in a separate envelope or folder for best keeping.

It’s also a good idea to go digital over time. One of the best ways to do this is by scanning old documents as you go and shredding the paper records. Start by scanning this year’s records and the oldest return you have. Do this each year and you won’t have to spend a large amount of time on the project.

A third tip is to keep two copies of important documents. These are documents that will be kept indefinitely, such as closing documents, investment transactions, insurance claims, retirement documents, and more. Put each copy in a separate location to avoid accidents.

What’s the Best Way to Prepare for Tax Time?

While dealing with past records and files is important, it’s necessary to stay organized with current records and files in preparation for tax time. Start by marking important dates on your calendar so major milestones and deadlines don’t pass you by.

Whether you prefer to keep files electronically or physically, you should pick an organization system and stick to it. Having a strict method and filing process for everything you do will ease the burden associated with tax time.

It’s also crucial you stay up to date on ever-changing tax laws. This will help you adjust as needed and ensure you aren’t left in a position detrimental to your finances. One of the best ways to do this is by using the services of a tax professional.

Regardless of the tax bracket you are in, a tax help service can make your life a whole lot easier. Not only can a tax professional help you stay abreast with new rules and regulations, but they can also advise you on what records need to be kept and which aren’t necessary. Make this upcoming tax season easier on yourself by staying organized.

For those who are stressed about taxes, records, returns, and other related documents, you can find solace in the fact that you are not alone. There is much confusion related to taxes and especially how to appropriately organize, file, and keep important documents. Thankfully, though, it can be simple and easy if you know what you’re doing. Let’s investigate some typical questions and provide clarity on these issues.

How Long Do I Need to Keep Tax Records and Tax Returns?

The question regarding how long to keep tax records is so popular that the IRS dedicates an entire webpage to the issue. According to IRS.gov, “The length of time you should keep a document depends on the action, expense, or event the document records.” In general terms, this means keeping the appropriate documentation until the period of limitations for that item of income or deduction runs out. This is the time period in which the IRS can assess additional tax and you are able to amend your returns.

While every situation is unique, there are some general circumstances under which you definitely need to keep your tax returns. These include the following:

• When you owe additional taxes, it’s a good idea to keep records for three years.

• When you don’t report income that should have been reported – and it accounts for 25% of your gross income – you should keep records for six years.

• If you file a fraudulent return, records should be kept indefinitely.

• If you fail to file a return, records should be kept indefinitely.

• Records regarding a filed claim for a loss on worthless securities or bad debt deduction should be kept for seven years.

• All employment tax records should be kept for at least four years after the tax is paid or due (whichever is later).

• When filing for a credit or refund after filing your initial return, you should keep records for three years after you filed the original return.

As a general rule of thumb, always ask yourself whether the documentation you are considering throwing away is connected to your assets or tax returns in any way. If it could be used to explain tax debt or liability, it should be saved until the appropriate statute of limitations expires.

Are There Any Tips for Organizing Past Tax Records?

People often ask about the best way to store, file, and organize old tax records. While it is completely up to you, there are some proven ways to stay on top of everything. First, it’s ideal to keep physical paper documents in a safe, dry place that cannot be contaminated by water. Each tax return should be put in a separate envelope or folder for best keeping.

It’s also a good idea to go digital over time. One of the best ways to do this is by scanning old documents as you go and shredding the paper records. Start by scanning this year’s records and the oldest return you have. Do this each year and you won’t have to spend a large amount of time on the project.

A third tip is to keep two copies of important documents. These are documents that will be kept indefinitely, such as closing documents, investment transactions, insurance claims, retirement documents, and more. Put each copy in a separate location to avoid accidents.

What’s the Best Way to Prepare for Tax Time?

While dealing with past records and files is important, it’s necessary to stay organized with current records and files in preparation for tax time. Start by marking important dates on your calendar so major milestones and deadlines don’t pass you by.

Whether you prefer to keep files electronically or physically, you should pick an organization system and stick to it. Having a strict method and filing process for everything you do will ease the burden associated with tax time.

It’s also crucial you stay up to date on ever-changing tax laws. This will help you adjust as needed and ensure you aren’t left in a position detrimental to your finances. One of the best ways to do this is by using the services of a tax professional.

Regardless of the tax bracket you are in, a tax help service can make your life a whole lot easier. Not only can a tax professional help you stay abreast with new rules and regulations, but they can also advise you on what records need to be kept and which aren’t necessary. Make this upcoming tax season easier on yourself by staying organized.

You’re getting ready to file your income tax returns for the year. You then notice the large amount of taxes you owe. There are many possibilities as to why you owe a significant amount. It could be a result of multiple incomes, or perhaps it’s because you’re a business owner with various other side ventures generating income. Or, perhaps you’re someone with offshore accounts and assets.

With all of this information you’re furnishing to the IRS, missing a couple of points wouldn’t hurt, right?

Wrong!

The IRS takes withheld information very seriously. Many people every year consider giving incorrect information, or simply withholding specific information, but this is not a wise idea.

Contrary to popular belief, the information you furnish to the IRS isn’t their only source of information about you. They have connections with banks, financial investment firms, and other government agencies. To put it bluntly, the IRS can easily realize your hidden secrets.

Audits are the most potent tool in the IRS’s arsenal. Powerful computer programs are designed to spot any inaccuracies and discrepancies in taxpayer returns.

There are four noteworthy systems of this type:

• The Discriminant Function System (DIF):

  This is a computerized system that analyzes each tax return on the basis of several factors. The higher the score, the more accurate the return is thought to be. Tax returns with low scores are red flags.

• The Unreported Income Discriminant Function (UIDIF):

  This is another computerized system that checks whether a taxpayer seems to be spending more than he or she is earning, thus raising doubt about an unreported income source.

• The Information Returns Processing System (IRP): 

  The IRS has a huge database of third parties who provide tax related information, like employers, brokerage firms, and banks. It cross checks information from tax returns; if anything reported seems out of place, an audit is initiated.

• Audits of Related Entities:

  If an audit was initiated and it is found that information was indeed wrongly reported, anyone related to the taxpayers or organizations is also audited.

It’s pretty obvious that hiding or furnishing the wrong information will get you nowhere. As technology advances, it will become more difficult to escape the clutches of the IRS.  Evading high taxes comes with the risk of several penalties, not to mention criminal prosecution. Failing to provide the correct information or ignoring it entirely can result in:

• Up to 3 years in prison
• Up to $250,000 in fines ($500,000 for corporations)
• Seizure of assets and property
• Seizure of bank accounts, deposits, insurance accounts, retirement funds

Substantial discrepancies in filing tax related information can result in extremely high penalties. Defaulting taxpayers with significant assets and accounts can be charged penalties of up to 40{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} of taxes owed, which can amount to thousands and thousands of dollars.

The good news, however, is that these dire consequences can be evaded. Pay taxes on time and in full and supply the correct information to the IRS. If you’re in doubt about how much you should reveal to the IRS or how you should go about doing it, seek professional help. A certified tax professional will advise you not to withhold any information.

A few simple steps will keep you out of trouble. Trying to cut corners during the initial phases of tax returns can cause much more trouble than it’s worth. Our advice is simple: pay taxes on time, every time, and pay them completely – it will keep both you and the IRS happy!