Four Brothers Financial, LLC

Limited Partnerships

admin — Thu, 06 May 2010 21:05:56 +0000

Because some companies, such as mining or oil drilling ventures, have large start-up costs and substantial risks of going under, the government allows investors to take tax deductions for initial funding of these companies. Investors receive immediate tax savings, as well as the potential long terms gains if the company prospers.

Charitable donations

admin — Thu, 06 May 2010 21:05:24 +0000

Making charitable donations is a legitimate way to reduce your taxable income, and as a result reduce the overall taxes you’d have to pay.

Retirement plans

admin — Thu, 06 May 2010 21:04:58 +0000

Since retirement accounts aren’t taxed heavily, investing in them qualifies as a form of tax shelter.

Tax credit

admin — Thu, 06 May 2010 21:04:35 +0000

A tax credit is different than a tax deduction, which reduces taxable income. A credit, though, reduces your tax liability dollar-for-dollar. For example, if there were a tax credit of $1000 for using environmentally friendly construction materials, you would owe $1000 less in taxes that year.

Financing arrangements

admin — Thu, 06 May 2010 21:04:00 +0000

Related individuals often use complicated arrangements involving capital gains taxes to their advantage. Capital gains incur fewer taxes than other investment income, so one person might decide to pay inflated interest rates to a related person in order to reduce the overall taxable value of the investment. Then, when withdrawing the investment, a huge capital gain is created, and taxed at a lower rate.

However, legal tax shelters exist as well.

Offshore companies

admin — Thu, 06 May 2010 21:02:50 +0000

By holding money and assets offshore, in places where ownership is difficult to trace, companies avoid U.S. federal income tax requirements. Companies also form offshore subsidiaries in order to purchase goods in places with low or nonexistent corporate tax rates.

Tax Shelters

admin — Thu, 06 May 2010 21:02:20 +0000

In an effort to avoid paying taxes, some individuals and businesses have sought refuge in tax shelters. The term “tax shelter” covers a wide range of methods designed to reduce the amount of tax incurred.

The legality of tax shelters varies, and many arrangements are illegal. Thus, the IRS is constantly on the lookout for entities attempting to utilize tax shelters. Some questionable methods of avoiding tax include:

Tax Scams

admin — Thu, 06 May 2010 21:01:52 +0000

Some scammers claim that by starting a home-based business, taxpayers can deduct many personal expenses as “business” expenses. Other schemes involve offshore transactions in foreign countries that have financial secrecy laws. As a general rule of thumb, taxpayers should be wary of anything that sounds too good to be true. Even if they are duped, these taxpayers could incur enormous penalties, have to pay back interest, and face possible imprisonment.

In general, the best way to avoid tax fraud is to enlist the services of a trusted and well-qualified tax preparer. A professional tax preparer will help you understand your taxes, ensure accuracy, and maximize deductions legally.

Tax Fraud

admin — Thu, 06 May 2010 20:59:44 +0000

Our tax system uses voluntary compliance as its method of assessing taxes, which means that individuals are responsible for filing their own tax returns each year. Happily, most of us are law abiding citizens who diligently file returns by the deadline and pay the correct amount of tax. There remains, though, a small portion of the population that commits tax fraud.

The IRS takes tax fraud extremely seriously, since uncollected taxes pose a strain on our country’s economy and on the integrity of the tax collection system. Individuals who deliberately avoid filing a return or distort their tax obligations face criminal investigation and prosecution.

Change of Filing Status

admin — Thu, 06 May 2010 20:58:50 +0000

Couples getting married may joke about how they’re looking forward to enjoying the tax benefits. While no one seeks a spouse solely for tax purposes, marriage does offer filing options that may prove beneficial. It’s best to consult with a tax professional to determine the optimal filing status for your individual situation though.

One option, the joint return, includes the combined income of both spouses, and allows them to combine deductions and expenses as well. Because the joint return is essentially a single return that details the tax liability of two people, both spouses are considered legally responsible for the contents of the return. Both spouses sign the joint return, indicating acceptance of its contents.

Sometimes married couples may opt for the married filing separately status, which means that each spouse is responsible solely for his/her own return. Returns are filed separately, so income is taxed for each individual and deductions are made separately as well. Spouses sign their respective returns separately too.

Choosing the best filing status might be tricky, but a tax professional can assess your individual situation and advise on the right choice.