The cost of certain capital investments may now be substantially reduced with the combined use of incentives and a 100% bonus depreciation. There is one catch, the bonus depreciation write-off is available only for purchases made in 2011.

Businesses that invest in new business property, machinery and equipment are now able to fully deduct the cost during the current tax year, which reduces taxable income and taxes paid.

With the proper help of a tax professional, a business can now reduce their out-of-pocket equipment and business property expenditures. They can do this because of the 100% federal bonus depreciation.

TO bottom line this, if you need new equipment for your business, then now is the time to purchase it and take advantage of the Unemployment Insurance Reauthorization and Job Creation Act of 2010.

Why Should You Keep Records?

Two reasons; they are good to have to look back on for financial reasons, and they are also needed to prove to the IRS that you made proper deductions. This proof would be needed in the event of an audit. You may think you will never get audited because of your income bracket, but this simply isn’t true. While the IRS does look for certain red flags, the fact of the matter is the auditing is done by random selection.

Best Records to Keep?

Honestly, it is good to keep just about everything imaginable these days, as you never know what random deductions you may get to use during tax season. You also need these records to prove the deductibility of an expense.

In addition to the usual records kept, i.e. proof of payment (cancelled checks, credit card receipts), you also need invoices, receipts, sales slips, or other written documentation that spells out exactly what you paid for. Other types of deductions that you need to document may include alimony, charitable contributions, mortgage interest, childcare expenses, and real estate taxes. Many of these depend on an individual’s situation. If you make payments in cash, get a detailed, dated and signed receipt showing the amount and a description.

Records to Keep:

• Form W-2 and 1099
• Bank statements
• Brokerage and mutual fund statements
• Form K-1 (for partnerships)
• Sales slips
• Invoices
• Credit card receipts
• Canceled checks or other proof of payment
• Home purchase and sales agreements, closing statements, and insurance records

How Long Should You Hold On to Tax Records

This will vary from person to person. Some people may keep them forever, some may only keep them a few years. The IRS destroys original tax returns after three years. Legally, you only need to keep the records for three years. However, you should keep a copy of your actual tax returns, W-2s, 1099s, etc., indefinitely. This information may be needed down the road for Social Security purposes or for something else.

Keeping good tax records is key when it comes time to file taxes. Cut down on time and give yourself less of a headache by keeping good records of all your income and deductions.

I have outlined several questions that I have asked or heard people ask. I’ll start with a short description and will get into the questions soon after.

BRIEF DESCRIPTION

401K – This is an employee sponsored retirement program. People can invest in several options, chosen by their employer to grow tax free. The initial contributions are not taxed while the money you take out after the age of 59 and 1/2 is. One great thing about 401K’s are they allow your company to match your contributions and invest money for you. Some match 10% and some match 100%, it just depends. A lot, (almost all) companies match with a vesting period meaning that they’ll set the money aside for you but you have to work for them for a certain period and you’ll get more of what they set aside the longer you work for them. Where I work the vesting period is 5 years meaning every year I get 20% of what they set aside. If I work for 4 years I’ll get 80% of everything set aside even that which was set aside by my company during year 1.

Roth IRA – A Roth individual retirement account allows you to contribute money that is already taxed and take it out tax free at the age of 59 and 1/2. The money you put in is also unable to be tax deferred. These usually can be set up through most banks or investment institutions.

Traditional IRA – A Traditional IRA lets you have the option of putting money that is already taxed in or money that can be tax deferred into the account. Like a Roth IRA a Traditional IRA can be set up through most banks or investment institutions.

TAXES – WHEN AM I TAXED

401K – You are taxed on a 401K when you take the money out. This means that on your paycheck the money you have deferred to your 401K plan is not taxed by the federal government. The money goes into the 401K plan prior to Uncle Sam grabbing his piece. While in the plan your money grows tax free as non-taxable interest. Yippeee! Once you reach, currently, the age of 59 and 1/2 years of age and you begin to take the money out you will be taxed at your then current income tax bracket rate, whatever it may be.

Roth IRA – With a Roth IRA you put money in that has already been taxed and is not tax deductible. The money then grows tax free, so long as you don’t touch it. At the age of 59 and 1/2 you can then take the money out contributions and earnings (meaning all interest made, dividends, or other earnings) tax free. Super, Super!

Traditional IRA – A Traditional IRA has different tax standings from a Roth in that the money you put into the account can be tax deductible during the year that you put it in depending on your status. The money then grows, again tax free as long as you don’t touch it until maturity. Upon maturing at the age of 70 and 1/2 the money can be withdraw but both initial contributions and the earnings are subject to federal income tax. Depending on your status if you made non tax deferred contributions you may not be subject to income tax on withdrawal, maybe. The biggest difference is the deferring at the contribution stage.

HOW MUCH CAN I PUT IN

401K – For a 401K an employee in the year 2006 can contribute up to $15,000. This amount can increase on a year to year basis as the government sees fit following inflation. If your employer matches to some degree to your contribution there is also a limit of $44,000 total between your contributions and the employers. (If they match 200% like that though tell me, cause I want into your plan.)

Roth IRA – For a Roth IRA the contribution limits (how much you can put in) are $4,000 for 2006 and 2007 and $5,000 for 2008. Now if you are over the age of 50 the government allows you to play catch-up and add a little more. For 2006 and 2007 you may put in $5,000 and for 2008 it’s $6,000.

Traditional IRA – For a Traditional IRA the contribution limits are the same as those listed above for the Roth IRA.

WHAT CAN I INVEST IN

401K – 401K plans are sponsored by your employer and most of the time setup and run by an outside company. Your employer, with or without your suggestions, picks several investment options usually mutual funds, money market funds, and/or bond funds. You are then allowed to designate a dollar amount or percentage of your deferment to this funds. You can choose to have all your money go in one fund or have your money split up among several. You may also have the option to rollover the 401K in the event of a job change.

Roth IRA – A Roth IRA us just like it says, an individual retirement account where you can direct the money wherever you see fit. You usually have to set it up through a financial institution of some sort like a bank, fund manager, or stock broker. Also with the plethora of online brokers available an easy way to go is through one of them allowing you to invest easily in stocks for you retirement. The beauty of the Roth IRA is that you have a lot more options with what you want to invest in. You can put it in a simple investment account like a savings or CD through your bank, or you can get complex and setup an online trading account through a company like ShareBuilder and control the money essentially daily. With an IRA you are in control of that money on a daily basis, you can’t take it out without penalty but you can try and maximize your profits (although there is a lot more risk with this).

Traditional IRA – Like a Roth IRA you are in control of the account on a more day to day basis and you can invest in a wider variety of places. See above for more description on your options.

WHERE CAN I MOVE MY MONEY

401k – 401K’s are sponsored by your company and usually only have 5-10 funds you can choose from. You can probably change between the funds regularly but will have to suggest a fund to your HR department if they don’t have it. They can then evaluate it and see if it’s a good add to the program (works better for smaller companies.)

If you were to change jobs for any reason you are usually able to transfer funds from the previous companies 401K funds to your new companies investment options, so long as they stay in the 401K “shelter.” You also may be able to keep the money in the previous employers 4o1K funds but I haven’t heard of plans allowing you to invest from your new company’s paycheck into that old companies plan. Let me know if you can with yours.

Roth IRA – Roth IRAs are setup as individual accounts allowing you the freedom to open the account with the financial institution of your choice. This means you can invest in a savings account with your bank, a mutual fund with someone like Janus Funds, or stocks with a stock broker (like online brokerage firms.) You can do all this so long as you keep the funds under the Roth IRA tax shelter. You can also transfer accounts from one institution to another. changing what you invest in. An example of this is if you invest in stocks with an online trading company and then change your mind wanting a safer investment in something like a low risk mutual fund. There may be fees associated with this but you’ll have to check the specific company for details.

Also something you may want to check into that I am not sure if you can do is taking some of your funds from say your banks saving account Roth IRA to say your online brokerage Roth IRA. Not sure if you can transfer part of your account but it’s worth the research.

Traditional IRA – Traditional IRAs allow you the same investment options as a Roth IRA. Just read more about the differences below.

CAN I TAKE THE MONEY OUT EARLY

401K – With a 401K, like all other accounts you incur a penalty if you take money out prior to turning 59 1/2. If you do there is penalty. With a 401K the penalty is 10% tax on top of the income tax that you would pay depending on your income tax bracket. There are exceptions to this rule where you would only be assessed income tax like death, permanent disability, and other such extenuating circumstances.

There is however one option you may have if your employer allows it. If allowed you can take out a loan that has to be repaid with after tax income and at an interest rate defined by the people who run your 401K plan. The principle you took out as well as the interest you pay in become part of the 401K balance.

Roth IRA – A Roth IRA has several options to withdraw money from it. You can of course with draw money at the age of 59 and 1/2 tax free. If you want to withdraw earlier you can withdraw up to the total of contributions (the taxed money you put in) tax free. If you withdraw any earned income from the Roth IRA you will be assessed a 10% penalty tax plus income tax which you normally wouldn’t have been taxed from. Ouch!

You may also be eligible to withdraw the money, contributions and earned income, if you are making a first home purchase or a qualified educational expense. Check with the IRS for more details.

Traditional IRA – Penalties are similar to the Roth IRA but you should check in with the IRS for more details. Tax deferments on contributions can get tricky. Also the age you are forced to take money out is 70 and 1/2.

This is of course just a primer on retirement accounts. You should always check with your banker, employer, or an investment specialist when considering where to put your money. The options can be daunting and you should research your particular situation as much as possible. Read books, Google it, or whatever it takes. Some resources I found helpful are the Wikipedia and the IRS. Check these places out, they have more links to more pages as well.

File for An Extension

Need a filing extension? No problem. Believe it or not, everyone is eligible to file for a tax extension. This extension will allow you until October 15^th to file tax paperwork. There is however one catch; if you owe the IRS money, then those payments are due by April 15^th. In that case, even if you file for a tax deadline extension, you need to send in an estimate of the taxes you owe. Failure to do so can result in fines or penalties. Filing electronically is your best bet, especially if you are way past the deadline.

Penalties for Not Filing a Tax Return

There are penalties involved if you do not file and pay your owed taxes. Here is a breakdown of what you will face:

• Failure to file or (FTF) penalty assessed at 5% per month or partial month up to a 25% maximum.
• Failure to pay (FTP) penalty assessed at 0.5% per month or partial month up to a 25% maximum.
• If both the FTF and FTP penalties are assessed, the FTF penalty is reduced by the FTP penalty.

Complicated? A little. So why not just go ahead and file? Failure to pay your taxes can result in fines, ruined credit, or even jail time. None of which you will want to deal with.

What If You Can’t Pay Your Taxes?

Most people look at the IRS as a cutthroat entity. While the IRS does indeed want to get all money owed to them, they also offer a number of payment options and other resources to help you get you taxes paid, both back and current.

After you file your taxes or file for an extension, you need to communicate with the IRS and try to negotiate a payment plan so you can pay the IRS your taxes. You can ask for an extension (a set time frame to pay your tax bill), or enter into a payment plan. This will at least allow you to pay for your taxes over a longer period of time. Some other good resources to use are a peer-to-peer lending company like Lending Club.

Organizations that carry this status are more than likely running on grants and donations from individuals and organizations. Every time you give a donation you can keep that record and use it as a write-off during tax season. Some organizations (churches) don’t require the 501(c)(3) tax-exempt status, but all your donations to them are fully deductible as well.

Donations don’t have to be limited to money either – though monetary donations are the easiest to track, record, and later report. Many non-profit organizations will accept all types of donations. Some other types of popular donations include:

• Food
• Clothes
• Toys
• Appliances
• Furniture
• Etc

There are all sorts of things you can donate, most of which will allow you to get a tax write-off. If you donate items other than money, be sure you get a receipt listing exactly what you donated. This will come in very handy when you are reporting taxes. The only thing you can’t write-off is time. In other words you can donate your time to a company, but there is nothing there to write-off.

Remember, to get the full benefits of all that comes with yearly donations, be sure to write down the fair market value of every item you donate (the IRS Publication 561 provides guidelines). For non-cash donations that exceed $500, use Form 8283 to itemize everything that was given. If you only gave money, then you should receive a receipt in the mail from the named organization stating what your yearly donation total was. Simply report that when filing taxes.

Donating to others in need is a great way to not only give to your community, but to also help people in need and get a little something back in return come tax time.

To expand on what I said above, simply put, a 403b retirement plan is a type of retirement plan that was built for tax exempt organizations. Religious ministers who are self employed, public school employees and other are types of people and entities that the plan is tailored to. It is comparable to the 401k plans that other businesses offer their employees.

What Options Does a 403b Retirement Plan Give and Individual?

A traditional 401k plan offers several great options to all company employees that participate in the program. The same can be said for a 403b retirement plan. This type of plan offers several options for someone who is involved.

Matching Benefits: More often than not a company will match the individual’s monetary donation (up to 3%), which allows the employee to build even more money.

Company Tax Write Off: The not-for-profit companies that participate in the 403b plans can write off matching employee contributions on their taxes at the end of the year.

Tax Deferred Status: Money that is contributed to a 403b can grow tax-deferred for a long period of time (decades). This allows the owner of the account to accumulate much more wealth. The owner will pay taxes on the account when he/she starts to withdraw the money, but by then it may not matter.

Emergency Loans: Individuals that have a 403b retirement account can take a loan out against the account in times of emergency. The loans will need to be paid back to avoid any tax consequences.

These are just some of the benefits that being a part of a 403b retirement plan offers the individual. Again, you will come across this type of plan if you are an employee within one of the professional sectors listed above. I have never been a part of this type of account, but my family owns a not-for-profit so some of my family members participate in the plan. They all say good things about the setup, so if you are lucky enough to be offered a 403b retirement plan, then I suggest you jump at the chance.

The Reason for Taxation

At some point or another, you probably have muttered, “Why do we have to pay our taxes in the first place?” This is a complaint that mostly everyone shares. If you’d be asked, “Why does the government collect taxes?” What would you say?

Would your response be somewhere along the lines of taxes are the lifeblood of the government? It is true. The government has to collect taxes so that it can pay its debts or bills. The government will not be able to operate if it does not have the taxes to help with the cost of government operations.

Why not just print all the money they need?

They could do that, of course. Unfortunately, if the government prints out the money, this would cause high inflation. Now, inflation, as you must know, is a covert tax. Inflation would cause a huge blow to individual and personal finances. By printing money, the government would only be taxing people indirectly.

Direct taxation is better. The government needs to tax the people. Taxation in a way is the inexhaustible source of government revenue. It is also the process by which the government forces people to accept state currencies. Some people argue that this last reason is the ultimate reason for taxation.

Keep in mind that it is taxes that pays for fixing roads, provide social service, pays government workers, and provide other social amenities. The challenge for any government is the level of taxes to charge residents of the country.

Like most personal finance transactions that you can do online, you do not have to think twice about doing taxes online. The payment system is secure. In fact, it is safer than paying taxes by mail. The 128-bit encryption technology ensures that the information is kept confidential. Card or bank details are stored on an online server that is kept secured by a firewall.

You are assured that your banking details and other personal finance information will not be accessed by unauthorized users. You can also pay federal and state taxes online without fear. Other tax can be paid online such as council taxes, business tax rates, licenses and fines. Typically, however, if you would like to pay for taxes online and continue doing so, your Internet browser must be able to sustain high encryption technology. Your connection must at least be 128 bits in order to support this kind technology.

The Federal Government has taken great care in ensuring that paying taxes online is safe and easy. They have to do this in an effort to guarantee that your information is safe and that they get the taxes needed to run the country.

After you’ve completed the tax forms, talk about filing taxes with your kids. Allow them to look at your returns and ask questions. This is a great opportunity to teach your kids about money and how it works.