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Tax and Tax Information - Income Tax

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Tax and Tax Information * Income Tax

Tax Magic: How To Turn Taxable Income Into Tax-Free Income   
Wayne M. Davies

Believe it or not, there are ways to convert taxable income
into non-taxable income, without any fear of an IRS audit.


Here's one of my favorites. It's been part of our
tax code for over 30 years, yet many still don't take
advantage of it.

Article to continue below----------------------------------------------

Tax Season Brings Out The Fraud Artists (ABC News)
Tax season is a popular time for identity-theft scams. Identity theft - Theft - Crime - Fraud - Law

----------------------------------------------------------------------------


What am I talking about?


The IRA -- Individual Retirement Account.

Article to continue below----------------------------------------------

No Blowing Smoke: Group Discusses SC Cigarette Tax (AP Via Yahoo! Finance)
Doctors and an anti-smoking group discuss efforts to raise South Carolina's 7-cent-a-pack cigarette tax that is the lowest in the nation.
Rally To Push For Hike To Georgia Cigarette Tax (AP Via Yahoo! Finance)
Anti-smoking advocates say they know a way to help fill Georgia's $1 billion budget shortfall: hike the tax on cigarettes by $1.

---------------------------------------------------------------------------


Now, before you say, "Oh, I know all about that one; what's
so great about an IRA?", give me 10 minutes to explain 3 new
benefits to the IRA rules that you may not realize.


BENEFIT #1: How To Avoid Tax Rather Than Postpone Tax


First, did you know that there are now 2 kinds of IRA's
available?


The so-called Traditional IRA is the one that first came
out way back in the 1970's.


But there's a newer version of the IRA that's only a few
years old -- it's called the Roth IRA. And the difference
between these 2 IRA's is huge.


Traditional IRA contributions are tax-deductible, resulting
in immediate tax savings. The growth of those contributions
is also tax-sheltered while the funds remain in the account.


But eventually all tax-deductible Traditional IRA
contributions, as well as the growth of those contributions,
will be subject to income tax when the money is withdrawn
from the account.


In other words, Traditional IRA's offer the opportunity to
temporarily postpone taxes.


In contrast, the Roth IRA offers the opportunity to
permanently avoid taxes. With a Roth IRA, you don't take
a deduction for your contributions; instead, you make
a contribution with "after-tax" dollars.


Whatever you put in not only grows tax-free, but can
also be withdrawn tax-free.


Here's an example to illustrate:


If you invest $2,000 per year for 20 years into a Roth IRA,
you will have invested a total of $40,000. Now if that Roth
IRA earns an average of 10% per year, that $40,000 will
grow into $126,005.


Now comes the fun part: Assuming the IRA has existed for at
least 5 years and you are at least 59 ˝ years old, you can
withdraw the entire $126,005 tax free.


In contrast, if this money had been invested in a
Traditional IRA, the entire $126,005 would be subject to
income tax as it is withdrawn.


The $86,005 of growth is magically converted from taxable
income to non-taxable income. Assuming you are in the 15%
federal tax bracket, that's a savings of $12,901. Add any
state income tax, and you could save over $15,000 in
taxes.


BENEFIT #2: Take An Extra 3 ˝ Months To Fund Your IRA


The deadline for contributing to your IRA is April 15 of the
year AFTER the year for which the contribution made.


So for Year 2005, you have until April 15, 2006
to put money into your IRA.


If you've already invested the maximum (more about that in a
moment) by December 31, 2005, then you're done. No more
money can go into the IRA for 2005.


But if you haven't maxed out your IRA, you have until
April 15 to do so.


Which brings me to . . .


BENEFIT #3: The Maximum Contribution Amounts Have Increased


For many years, the most you could put into an IRA was
$2,000. Now, the maximum is $4,000 (assuming you have at
least that much earned income from wages or self-employment
income).


And if you are over 49, you can put in another $500,
bringing the total maximum to $4,500.


A married couple, both age 50 or older, can put a whopping
$9,000 per year into a IRA. Not too shabby, eh?


One final note about these Roth IRA rules: For married
people, you can only contribute the maximum of $4,000 or
$4,500 if your combined income is less than $150,000.


If you are single or head of household, you can contribute
the maximum if your income is less than $95,000.


For most middle-class folks looking for a perfectly legal
way to permanently avoid tax (rather then merely temporarily
postpone tax), the Roth IRA fits the bill.


Now comes the hard part -- how to actually implement this
tax avoidance strategy.


"We'd like to save as much as we can for our golden years.
But $9,000 a year? It's hard to put aside that kind of
money. We need every dollar we make just to pay the bills."


If that's your situation, I'm not going to get up on my
"what-do-you-mean-you-can't-save-any-money-for-retirement"
soapbox and start preaching at you.


I will say this: You've got to start somewhere, and you've
got to start saving something, don't you?


People who have a problem saving for retirement usually have
a budgeting problem. For an excellent resource on
budgeting, I highly recommend the Budget Stretcher web site:


http://www.homemoneyhelp.com.


This site offers a free budget system complete with simple
forms and worksheets to help you figure out how to put some
money aside for a Roth IRA or other savings plan.


Take advantage of this resource and get started today.



Wayne M. Davies is author of 3 tax-slashing eBooks for small
business owners and the self-employed. For a free copy of
Wayne's 25-page report, "How To Instantly Double Your
Deductions" visit http://www.YouSaveOnTaxes.com

What Other Authors say about Taxes

Tax Tips for IT Consultants and Contractors by Stephen L. Nelson, CPA

I live and work, quite literally, down the road from the main Microsoft campus. No surprise, then, that I'm commonly asked by freelance consultants for the best ways that these self-employed independent...

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A number of publications, including my own, have mistakenly reported over the past year that Coverdale IRAs, formerly known as Education IRAs, are tax deductible. Coverdale IRAs are not tax-deductible.Originally...

Gambling Income and Expenses - Taxes by Richard A. Chapo

Hit a big one? With more and more gambling establishments, keep in mind the IRS requires people to report all gambling winnings as income on their tax return.Gambling income includes, but is not limited...

Tax preparation: Should You File Or Pay A Professional? by Kenneth L Myers

You do not have to be a professional to do your taxes however if you have a complicated income structure or are just not quite sure, there are services to help you prepare taxes for yourself or your business....

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Preparing Ahead For A Pleasant Tax Day by Carl LaFresnaye

How did you spend your last tax day? In line at a post office at almost midnight, dropping off your taxes? Dreading going on an extension again – knowing if you owe and don't pay it on time, there will...

Income Tax Preparation: Do It Yourself ? by Gary Talbot

There is one hassle that we all have to deal with each and every year and that is doing our income tax preparation. There are really only two choices we have in this matter. You can either do it yourself,...

Get Help From A Tax Attorney by David C Skul

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Who are the CPA Moms?      Your Tax Professional Forever!!!!

“CPA Moms - Tax Moms - EA Moms" are trade names given to Accounting and Tax Professionals who chose to work in an “relaxed” environment. Some "Moms" work from home, other work from personal offices. Not all are Moms, there are some Dads. We call them Mr. Tax Moms. CPA Dads or Enrolled Agents Dads.
Each Mom is independent. Once a client starts working with a Mom, the client will keep the same “Mom” year after year regardless of where the client moves or relocates. Being in a “relaxed” environment has many advantages. Lower overhead, faster response time, more availability, etc.
To be a member a CPA Mom, Tax Moms, or an Erolled Moms the Tax Professional must ALWAYS be in good standing with their state licensing agency, experienced, and must demonstrate a high level of ethics, professionalism and proficiency.
Tax Net Inc, the parent company for all CPA Moms, Tax Moms and Enrolled Moms, developed the marketing and on-line systems to help qualified Tax Professionals who "choose" work from their “relaxed” environment and offer better service at a lower price to the consumer.
Since the “Moms” do taxes and accounting of all complexities, there is always a Mom available for every level of work. Since each Mom has a private 800 number, you are just a phone call away, regardless of where you live.
For reliability and dependability of Tax Net, Inc, the parent company of the “Moms” organization click on the Better Business Bureau (BBB) icon.

To Join CPA Moms

Click for accredited member's reliablility report.

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Index of Articles about Taxes

What Other Authors say about Taxes

Tax Tips for IT Consultants and Contractors by Stephen L. Nelson, CPA

I live and work, quite literally, down the road from the main Microsoft campus. No surprise, then, that I'm commonly asked by freelance consultants for the best ways that these self-employed independent...

All About Late Filing Of Federal Taxes by Carl LaFresnaye

The IRS allows for late filing of federal taxes provided the appropriate paperwork is filled out (there's always paperwork!). This simple guide shows you how to go about it. Forms for Late Filing of...

Does IRS have a Refund or Stimulus Check for you by

The Internal Revenue Service is trying to find 279,000 recipients for more than $163 million in undelivered economic stimulus payments, according to the government. The average undelivered check is worth...

Tax Treatment for Coverdale IRAs by Tony Novak

A number of publications, including my own, have mistakenly reported over the past year that Coverdale IRAs, formerly known as Education IRAs, are tax deductible. Coverdale IRAs are not tax-deductible.Originally...

Gambling Income and Expenses - Taxes by Richard A. Chapo

Hit a big one? With more and more gambling establishments, keep in mind the IRS requires people to report all gambling winnings as income on their tax return.Gambling income includes, but is not limited...

Tax preparation: Should You File Or Pay A Professional? by Kenneth L Myers

You do not have to be a professional to do your taxes however if you have a complicated income structure or are just not quite sure, there are services to help you prepare taxes for yourself or your business....

Understanding Business Tax Write Offs by Wade Robin

A tax write off is the same thing as a tax deduction, and if you don't know what expenses are legitimate deductions on your tax return, you won't know what you can legitimately write off either. In the...

Tax Breaks Make Homeownership Affordable by admin

<p>How Does Buying Beat Renting?<p>Melissa is single with no dependents and earns $50,000 a year. As a renter, she doesn't itemize deductions. Melissa eventually purchases a home and ends up...

Preparing Ahead For A Pleasant Tax Day by Carl LaFresnaye

How did you spend your last tax day? In line at a post office at almost midnight, dropping off your taxes? Dreading going on an extension again – knowing if you owe and don't pay it on time, there will...

Income Tax Preparation: Do It Yourself ? by Gary Talbot

There is one hassle that we all have to deal with each and every year and that is doing our income tax preparation. There are really only two choices we have in this matter. You can either do it yourself,...

Get Help From A Tax Attorney by David C Skul

All the people have to handle tax problems, which can be very difficult if you have to manage these troubles by yourself. And things can get worse if one day the IRS comes knocking on your door. You don't...

How to Use an Early Retirement Plan to Secure Your Future by Scott Taylor

<p>In fact many of these people had no intention of retiring and used these generous packages to move into second careers. They did not retire at all until much later, in their sixties. Nowadays,...

Income Tax Booklet- Useful Roadmap For Tax Savings by deepak kulkarni

<p>Now consider your credit card. Most credit cards carry an interest rate of anywhere from twelve to twenty-one percent. If you owe taxes that you can't pay, you probably have a higher interest...