Smart Money Choice$

Many people have never heard of Use Tax, but it could be a tax that just might jump up an bite you!

Use Tax is not something new. It has been around as long as it’s much more famous brother, Sales Tax. Generally, Use Tax is paid to states that charge Sales Tax. The purpose of Use Tax is to equalize the Sales Tax burden between in-state and out-of-state purchases. Sales Tax and Use Tax go hand-in-hand.

Everyone knows that you must pay Sales Tax at the time of purchase to a vendor selling a taxable product in that state. The reason  is because it is presumed you will use what you’ve bought in that same state.

If, however, you make purchases in a no-tax state, and then cross the state lines and use your purchase in a state that charges sales tax, or you make your purchase through mail order or on the Internet, they are generally not required to collect sales tax from you. (That is, if they don’t have a presence in your state.) On significant purchases, most people consider this as a savings. By law, it shouldn’t be.

As you might imagine, it is nearly impossible (at present) for a state to require an out-of-state vendor to collect sales taxes if they do not operate any part of their business in that state. Those vendors are outside of the state government’s jurisdiction.

Therefore, Use Tax is expected to be paid by the one making the purchase; the one who will USE the taxable product in that state. Hence, the name, Use Tax. Though that’s the law, it has been near impossible to enforce, since there is no way for the state taxing authorities to know what is being purchased and brought into the state.

However, in theory, Use Tax is a significant source of state revenue for states that charge Sales Tax. But because of the difficulty of enforcement, it has largely gone uncollected. Until now.

With the rapid growth of Internet sales, this potential source of revenue has become more than substantial and the taxing agencies know it. Therefore, these states are starting to collaborate to come up with ways to pull in the “extra” revenue.

Guess who the taxing agencies are targeting first? Yep, businesses. Especially businesses who are already registered to collect sales tax. At this point, they are attempting to threaten a full-scale audit if “voluntary compliance” is not adhered to by businesses who are collecting sales tax.

The states knows businesses are buying taxable products across state lines, as well as via the Internet, just like everyone else. So if these businesses are not reporting Use Tax with their Sales Tax returns, they’ve got them. Several states are sending out letters asking businesses to start reporting out-of-state and Internet purchases from now on. These “requests” are laced with a threat of future audits for non-compliance.

Use Tax applies to purchases that are shipped to you from another state and consumed by your business. It does not apply to purchases you make for resale.

If you are already collecting Sales Tax, it may be in your best interest to start tracking your out-of-state purchases made for your business and remitting your fair share of Use Tax. In most cases, this will not be a large additional expense, and it will help you to stay under the radar of your state’s tax collector’s blood hounds.

If you have already received a notice that you are expected to pay Use Tax, do you have a reliable method of tracking the applicable transactions? QuickBooks, of course, can make it easy.

You may want to check out the video tutorial I just posted on my FREE QuickBooks training blog. It shows a couple insider tips to save you time and minimize the sting of paying yet another tax that bites into your bottom line.

WANT TO USE THIS ARTICLE IN YOUR OWN BLOG OR E-ZINE? You have permission to re-publish it, as long as you include the following author’s bio and link:

Gabrielle Fontaine, PB is a freelance Professional Bookkeeper and Certified QuickBooks ProAdvisor. She specializes in assisting Internet-savvy entrepreneurs to get control of their books and maximize profits. Gabrielle also publishes the business-boosting online ezine, Smart Money Choices. Get more information at http://www.BookkeepingDirect.com

Believe it or not, there is over $266 million in tax refunds that the IRS can’t seem to give away! Did you get yours?

The IRS is looking for more than 279,000 taxpayers who are missing their economic stimulus checks totaling about $163 million, and more than 104,000 taxpayers who are missing their regular refund checks totaling about $103 million.

What’s the problem?

These refund checks were returned by the U.S. Postal Service due to mailing address errors. If you moved since you filed your tax return, or if the address on your tax return is wrong, the IRS may owe you money!

Economic Stimulus Checks

Everyone who has a stimulus check owed to them needs to update their address with the IRS by Nov. 28, 2008. By law, economic stimulus checks must be sent out by Dec. 31 of this year. The undeliverable economic stimulus checks average $583 each.

The “Where’s My Stimulus Payment?” tool on the IRS’s website is the quickest and easiest way to check the status of a stimulus check and receive instructions on how to update your address on their records.

Regular Refunds

The regular refund checks that were returned to the IRS average $988 each. These checks are automatically resent once the address is updated.

If you need to update your address with the IRS, you only need to do it once. The IRS will then send out all checks due.

To update your address, use the “Where’s My Refund?” tool on the IRS website. You can also use it to check the status of your refunds. You’ll need to supply your social security number, filing status and amount of refund shown on your 2007 federal tax return.

Since time is short for getting out the lost Economic Stimulus checks, the IRS has also made this Audio file availabe to help get the word out.

So if you haven’t received yours yet, be sure and contact the IRS pronto and claim your dough.

It’s tax day!

No, it’s not time to file your income tax return again already, but if you’re supposed to be paying quarterly estimated taxes, today is the day the second quarter payment is due for 2008.

For many who pay estimated taxes, this payment is a tough one. That’s because it was just two short months ago that we had to pony up the dough for any taxes that were due to close out 2007, PLUS shell out even more money for the 2008 first quarter estimated tax payment.

What about you? Do you already have the cash available to make the second quarter payment without feeling a painful pinch?

If not, you’re not alone.

Many self-employed folks–surprisingly, even those making piles of money–come up short on cash when trying to pay their estimated taxes because of not planning ahead.

These people are then forced to send in their payments late or, worse yet, not at all. That costly strategy can really bite hard because it means facing a huge tax bill next April 15th, which can be further inflated by underpayment penalties.

Ouch!

Whenever I see small business clients headed toward this painful yet common tax trap, I suggest my simple two-step system to make keeping up with estimated taxes easy and almost painless. (Of course, we all know paying taxes is never completely painless.)

STEP 1: Use a simple spreadsheet to keep track of your estimated tax amounts.

The easiest way I’ve found to do this is to record your gross revenue in a spreadsheet. Then apply a specific percentage to that amount, say 25%. The result is the amount you should set aside for paying your estimated taxes.

The percentage you use is only an estimate as your income accumulates throughout the year, and it is unique to your tax situation.

A quick way to calculate a reasonable starting percentage is to look at last year’s numbers. Divide the total amount of your tax liability by the total of your gross revenues. Don’t forget to include ALL the taxes you paid–federal, state and local–throughout the year. This percentage is a reasonable starting point.

When your actual 2008 taxes have been calculated next April, you’ll know whether any adjustment is needed in the estimate you are using on your spreadsheet, based on whether you have money leftover or don’t have quite enough.

Now, once you’ve applied that percentage to the gross revenues you’ve pulled in so far this year, the result is the amount you should put aside to pay your quarterly taxes. Since we are already halfway through the year, subtract any estimated payments you have made so far from this amount.

Going forward, every time you receive a payment from your clients, you should update the gross revenue amount you’re tracking on your spreadsheet and it should calculate the corresponding additional allowance for taxes you should immediately set aside.

You will also want to use the spreadsheet to track your estimated payments as you make them throughout the year, including the actual dates on which you made those payments. This information will be needed to give to your tax preparer next spring.

But how do you make sure that you don’t use the money you are earmarking for taxes for something else in a moment of weakness?

STEP 2: Open a savings account just for taxes.

An online savings account is ideal for this purpose. But if you prefer, a savings account at the bank where you have your business checking account will work just as well.

By putting your tax money in a separate savings account, it will discourage you from using that money for any other purpose. As a small bonus, as your tax savings balance builds, you will be paid interest on the accumulating money.

Remember the purpose for this account is to assure that the cash is available when it comes time to make your quarterly payments. This quick and simple method is designed to mimic the ease of automatic withholdings employees get from their employers, and often allows them to look forward to a tax refund.

Using this system, you could get the same result. You may even find that your tax savings account shows “leftover” money when everything is said and done next April. Wouldn’t that be a pleasant tax experience for a change?

Bottom line: By using this simple two-step system, you can stop worrying about having enough cash to make your tax payments.

In fact, I’ve even got an incentive for you to help implement this system right now. I’ve arranged it so that you can get paid $25 just for opening an online tax savings account.

As you might imagine, I can only offer this bonus to a limited number of people, but if you’re ready to make the Smart Choice of “automatically” putting aside money for your tax payments, I’ll show you how to do it and get $25 for taking action when you click here.

Come next April 15th, you’ll be glad you did.

WANT TO USE THIS ARTICLE IN YOUR OWN BLOG OR E-ZINE? You have permission to re-publish it, as long as you include the following author’s bio and link:

Gabrielle Fontaine, PB is a freelance Professional Bookkeeper and Certified QuickBooks ProAdvisor. She specializes in assisting Internet-savvy entrepreneurs to get control of their books and maximize profits. Gabrielle also publishes the business-boosting online ezine, Smart Money Choices. Get more information at http://www.BookkeepingDirect.com

This is the time of year when the IRS is sending out notices not only regarding Tax Rebates, but also on discrepancies relating to tax returns filed in April. The scammers are taking advantage of the timing.

The latest scheme involves a tax refund form that is sent via email, supposedly by the Taxpayer Advocate Service (a real organization within the IRS that assists taxpayers with unresolved problems). This one is especially blatant in the type of information it requests.

At the bottom of the message is a phony name and signature, claiming to be the Taxpayer Advocate. The idea is that you fill in the form and submit it directly to the Taxpayer Advocate to receive a tax refund.

Of course, the only way to get a tax refund (or the Economic Incentive Rebate this year) is to file your annual tax return. Refunds are not issued with the use of a separate application form. And the IRS sends notices via US Postal Service, not email.

So, if you receive this bogus message, be assured that it is a scam and simply delete it.

Another scam circulating is less obvious. In fact, I actually received one of these emails in my inbox recently. It’s supposedly from the US Tax Court.

This message is what’s called “Spear Phishing,” which is an email spoofing attempt that targets a specific organization. Again, this is a scam. The Tax Court is not sending any email notices to anyone, whether they currently have a case before the Tax Court or not.

You can identify this fake email because it will have the words “US Tax Petition” in the subject line, along with a fake docket number. The sender address is noreply@ustaxcourt.org.

If you get one of these messages, DO NOT reply or click through on any of the links. Just delete it. And have no fear. If either the IRS or the Tax Court wants to contact you, they’ll send you a letter in the regular mail.

You can get more information on these scams straight from the government websites:

www.ustaxcourt.gov
www.irs.gov/newsroom/article/0,,id=155682,00.html

WANT TO USE THIS ARTICLE IN YOUR OWN BLOG OR E-ZINE? You have permission to re-publish it, as long as you include the following author’s bio and link:

Gabrielle Fontaine, PB is a freelance Professional Bookkeeper and Certified QuickBooks ProAdvisor. She specializes in assisting Internet-savvy entrepreneurs to get control of their books and maximize profits. Gabrielle also publishes the business-boosting online ezine, Smart Money Choices. Get more information at http://BookkeepingDirect.com

Here’s the latest news about how much you’ll get for the special tax rebate, and how soon you can expect to receive it.

The IRS has now published a rebate payment schedule that applies if you file your tax return by April 15. The Payment schedule is based on the last two digits of your social security number.

The IRS will begin sending rebate payments by May 2 and will continue throughout the summer. You can see when to expect your payment with this handy schedule, courtesy of the IRS.

Remember, you will get your rebate quicker if you specify direct deposit information on your 2007 tax return, since electronic rebates will be sent well before physical checks are mailed out.

The IRS has also posted a rebate calculator to help you know exactly how much your rebate will be. IRS Rebate Calculator

So file your return on time this year, and you’ll get your rebate quicker. But don’t fret if you do need to file an extension. You will still be eligible for the rebate (assuming you meet the other requirements), but the above payment schedule will not apply. Your rebate will be sent at a later date, based on when you actually file your 2007 tax return.

~Gabrielle