Arika Answers

I know they are out there. What am I talking about you ask?

Income Tax Questions!

Please E-mail me or post a comment with any questions you may have and I will do my best to respond here and via email. If you would like an email response, please be sure to send me your email address.

If you don't hear from me in a day or two..don't fret...that just means that I had to research the answers you need and I am working hard to give you the correct answer. You will hear back from me with your answer, you have my word!

This is something that I get paid to do, but I'm doing it free for a limited time only! To quote those TV infomercials: "Act Now, before it's too late!" Get your questions together and send them over. I want a full comments list and inbox...the more the merrier!

Telecommuter Tax Fairness Act Petition

As I stated in an earlier post, this is something I am behind with all my heart and soul! To me this is double taxation and is wrong! Please support this act for me and my fellow telecommuters by signing the petition. If you do sign let me say thank you ahead of time for your support.

I have sent this link to everyone I know so far and I hope that you will atleast view the petition. Once you see the petition and read the article I posted a link to on January 23rd, I think you will agree that this needs to be addressed in Congress and quickly!

Thank you to a fellow Telecommuting Moms forum member for finding this link. ;)

http://www.petitiononline.com/totp02/petition.html

Thanks again to everyone and hopefully we will get this Act passed!

Publication Makes Sense of Hurricane Tax Changes

Publication 4492 was issued yesterday by the Internal Revenue Service. This new publication explains the changes to tax laws concerning taxpayers affected by the three major hurricanes of 2005 (Katrina, Rita and Wilma).

Tax breaks, a list of disaster areas for each hurricane, administrative relief, how to claim losses, and new charity laws are just some of the items that are discussed in the publication.

Publication 4492: Information for Taxpayers Affected by Hurricanes Katrina, Rita and Wilma is available at the IRS Website. In approximately two weeks the publication will be available in print as well.

The Telecommuter Tax Fairness Act

I am so behind this act and hope that it passes and soon!

Check out how it's supporter list is growing! http://www.prweb.com/releases/2006/1/prweb335338.htm

Maybe we should start a petition! If anyone knows of one please post a comment or email me with the link and I'll post it here, until then I'll see what I can come up with.

Notice: If you mail your tax return to the IRS please read!

Taxpayers in Washington D.C. and 11 states who file paper returns will have a new place to send their returns this year. The IRS has made changes to where individual tax returns should be mailed for the 2005 tax year in these areas.

If you receive a tax booklet in the mail, the label will have the correct address for you to send your return to. For those who don't receive the packet and are sending their tax returns via regular mail, the addresses for the tax centers are on the back of the instruction booklets for your particular tax form. Taxpayers who are filing electronically will not be affected by this change!

The following is a list of the affected states and the IRS Center where the returns should be sent.

Delaware & Virginia Atlanta, Georgia
D.C. & Maryland Andover, Massachusetts
Ohio Kansas City, Missouri
Kansas, Mississippi, & West Virginia Austin, Texas
Colorado, Nebraska, New Mexico, & South Dakota Fresno, California

Mileage Rates to Use for 2005 Income Tax Returns

On an earlier post I said I would post the mileage rates to use when filing your 2005 Federal Income Tax Returns. As promised here they are! Please take note that there are special rates for Hurricane Katrina charitable miles.

Business Miles
January-August 2005 (first 8 months): 40.5 cents per mile
September-December 2005 (last 4 months): 48.5 cents per mile

Medical or Moving Miles
January-August 2005 (first 8 months): 15 cents per mile
September-December 2005 (last 4 months): 22 cents per mile

Charitable Miles
14 cents per mile, with the exception of charitable miles relating to Hurricane Katrina.

Special rates were approved by Congress for charitable miles driven for charities providing relief efforts to Hurricane Katrina victims as follows.

From August 25 - August 31, 2005: 29 cents for deduction purposes and 40.5 cents for reimbursement purposes.

For September-December 2005, the rates are: 34 cents for deductions and 48.5 cents for reimbursements.

As always, if you have any questions regarding these rates or when to use them, please feel free to contact us or check with the IRS.

A Few Forms Not Yet Ready for 2005 E-File Users

Those wishing to use E-File to file their 2005 income tax returns may need to hold off a few more weeks, according to a newswire sent out by the IRS yesterday.

Due to a few tax law changes that happened late last year, 13 forms are not ready for the e-file format at this time. The IRS says that none of the commonly used forms are a part of this bunch and that the affected forms, listed below, should be available by the end of this month.

Forms affected by Tax law changes:
Form 982: Reduction of Tax Attributes Due to Discharge of Indebredness (and Section 1082 Basis Adjustments)
Form 8606: Nondedcutible IRAs
Form 8863: Education Credits
Form 8915: Qualified Hurricane Retirement Plan Distributions & Repayments
Form 3468: Investment Credit
Form 3800: General Business Credit
Form 5884-A: Credits for Employers Affected by Hurricane Katrina, Rita, or Wilma
Form 8379: Injured Spouse Allocation
Form 8611: Recapture of Low Income Housing Credit
Form 8864: Biodiesel & Renewable Diesel Fuels Credit
Form 8896: Low Sulfur Diesel Fuel Production Credit
Form 8271: Investor Reporting of Tax Shelter Registration Number
Form 8886: Reportable Transaction Disclosure Statement

For the majority of taxpayers, this will not be a problem due to the fact that W-2 and 1099 forms are not received until late January. However, paper returns can still be filed with the correct forms if one wishes. The IRS suggests that those wishing to file electronically wait the few extra weeks to do so because it will still result in a faster refund than if they mailed a paper return.

For more information on this and other 2005 tax issues, click here to visit the IRS website.

Is Your Business Legally Prepared?

By: Sonia Colon
It is imperative to have your business legally prepared. How you ask? You need to have a business license, a home occupation license, if running your business from home, a city or county license, (depending on what state you live) plus you need to register your business as fictious if you are not using your name as a business. For instance, If John Doe has a business name as John Doe's Grooming Parlor, a fictious name isn't necessary.

When opening a business in your residence, additional information is required. Some businesses require more than a city license to be fully licensed. Please check with your local city & state office for detailed information.

While it is my understanding that there are many businesses who are operating "under the table", so to speak, I highly advise against this practice. If you are just interested in selling a few things out of your home, don't worry about this section, as you should not have any form of tax liability for selling your own belongings. However, if you start a business to make some money, you need to look at the legal aspects of running a business. Eventually, those who operate under the table will be caught.

If you are running an internet business it is not as anonymous as some people may believe. Keep in mind, the government designed the Internet in the first place! They know how it works! Legalize it and you will sleep better at night!

It really is simple. This is not as complicated as you think, so don't worry! I know I fussed and fretted over this for a good while and when I actually went "legal", I kicked myself because the process was so simple.

Follow the steps below to get you started:

1. Determine the type of home business you want to start. Sole Proprietorship, Partnership or Corporation.

* A Sole Proprietorship is the least costly and least complicated way to set up your business. Remember that a Sole Proprietorship is totally dependent upon your ability to work and have good ideas for growth. There is no other person in the business to rely on.

* A Partnership happens when two or more entrepreneurs form a company. Legal fees for setting up such an arrangement are usually more costly than those required for a Sole Proprietorship and less costly than a Corporation. The up side of a partnership is more capital for growth and more ideas for how to grow the business. The downside is getting rid of a bad partner.

* A Corporation is the most complicated and most costly of the three options. The ongoing accounting, legal, and tax reporting obligations of a Corporation are much more complicated than for the other two options. Corporations have boards, shareholders, and shared responsibility for the business. It is necessary to keep everyone informed of decisions, the company's financial status, and a host of other actions.

It is wise to seek the advise of an attorney in the beginning of your work-from-home situation in order to avoid serious problems later on. An attorney will guide your decision about what legal form your company should take.

2. If using a fictious name for the business, it must be registered first with the state. Call your city & state office. Usually, you can do this online. Visit their site and fill out a fictious name form. A fee may or may not apply.

3. Is your home located in the city? Some states like Florida require a county license if your busines isn't located in the city. If not sure, contact your local jurisdiction office for licensinig information.

4. Complete the home occupation application and the business license application. You may download the forms from your city hall website. Call your city hall office to find out their website address and fees.

5. Forward your applications and fees to your city hall office either by mail or by visiting the office. They will usually accept cash, checks, debit cards, VISA, MasterCard or American Express credit cards. Again, check with your local city hall office.

If you visit in person with your applications and appropriate fees, you will get your business licenses the same day. However, if you do all of this by mail, you would need to wait at least 2 to 3 weeks to receive your licenses. Either way, you are on the right track. Congratulations!!

Article by:
About the Author: Sonia Colon is owner of a successful online specialty giftstore "Jimson Products" visit: www.jimsonproducts.com for a wonderful display. Get Your Own FREE Mall: www.telebay.com/shopping1/mallopp.html

E-File Begins Friday

The Internal Revenue Service will begin accepting electronically filed tax returns on January 13th, 2006. In 2005, more than 68 million Americans filed their 2004 income tax returns electronically and that number is sure to grow this year.

With the end of Telefile and the continuation of Free File people are finding that electronically filed returns and payments yeild a quicker and more accurate return and refund. Using E-file and having your refund deposited directly into your bank account taxpayers can receive their refund in as little as two weeks time.

For more information on Electronic Filing and Free File with the IRS CLICK HERE.

Life Gets a Little Easier for Small Biz Employers

On January 1, 2006, the IRS made filing employment tax form 941 each quarter a thing of the past for certain small business owners!

In past years, all small business owners with employees were required to file Form 941 quarterly, regardless of the amount of tax due. For those employers with an annual employment tax liability of $1,00 or less this process has been greatly reduced. The IRS is now only requiring these employers to file once a year with a new form. Form 944 (Employer's Annual Federal Tax Return)and the instructions will be available online by January 31, 2006.

Notifications will be sent to qualifying employers between February 1 and February 15, 2006. If employers do not receive a letter and feel they are eligible, they can call the IRS at 1-800-829-0115.

Check out www.irs.gov for more details.

IRS Website Improvements & Changes

Happy New Year to everyone!
Mom's Gone Virtual wishes you and yours great happiness and success in 2006!

This New Year brings changes to the Internal Revenue Services' Website. The entire site has been redesigned. Just a few of the updates/changes include:

1. 1040 Central: Here you can find forms, new tax codes and a FAQ section.

2. Free File: Various tax software/companies have paired with the IRS to provide this service. Eligibility based on your income: approximately $50,000 or less, differs for each tax company. You must go through www.irs.gov in order to qualify!

3. Earned Income Tax Credit Assistant: This tool will help you find out if you are eligible for the EITC and gives you an estimate of the amount you are eligible for.

4. Alternative Minimum Tax Assistant: Gives a simple test for taxpayers who don't use software to complete their tax returns to help figure out if they owe the Alternative Minimum Tax.

5. Hurricane Assistance: There are many tax changes for victims of, donators to victims and businesses located in the areas of 2005 Hurricanes Katrina, Rita, & Wilma. You can check the website for information concerning these changes or call a special toll-free number set up by the IRS for victims: 1-866-562-5227.

Also, note that the due date for returns to be filed is April 17, due to the 15th being on a weekend. A few states (Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and the District of Columbia) will also get an extra day on top of that due to a state holiday in Massachusetts, which is where the processing office for those states is located.

If you plan to file an extension (Form 4868, Application for Automatic Extension) this year you will be pleased to know that you will automatically get an extension to October 16. This gives those taxpayers who file this form an automatic 6 month extension versus the old 4 month one. Please note you must file the form by April 17 in order to receive this extension.

These are just some of the changes 2006 brings to taxpayers. Keep your eye out here and on the IRS website for more!

As always, this is just information and is not to be construed as legal or tax advice, please check with your tax professional for information regarding your specific situation.