Questions About 1099

The difference between a taxidermist and a tax collector is that the taxidermist only takes your skin, according to Mark Twain and many Americans agree with him. Tax bills are unreasonably high but because of something called tax breaks, there are many legal ways to reduce your taxes.

You can pay fewer taxes by utilizing tax breaks that come with income taxes. Some claim it is cheating to get a tax break, but it’s not. Every incentive you meet the requirements for are yours, guilt-free, and by not accepting tax breaks you are doing yourself a financial disservice. The Judge Learned Hand said that “There is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike, and all do right, for nobody owes any public duty to pay more than the law demands”.

Follow these five simple rules when researching tax breaks:

1. Be truthful. There’s no way around it: you just have to pay taxes on any income that can’t be exempted, deferred, or canceled out. If you try to hide, rename, or lie about your income you’re almost positive to get audited and fined. You can even be jailed.

2. Obey the spirit as well as the letter of the law. Congress creates doesn’t create tax breaks just to be nice. Sometimes they want to boost the economy, sometimes they want to save the environment - whatever the reason, make sure that it applies to you. Bending tax law to fit your situation can be illegal. If you’re not sure, consult a tax professional.

3. Tax credits should always be chosen before deductions. Tax credits reduce the amount that you have to pay on your taxes overall while tax deductions just reduce the amount of income you can be taxed on. It makes more sense to choose a tax credit because if you get a large deduction on your taxes, for example $1000, then you still have to pay a certain percent of your taxes with that $1000 subtracted out. It would make more sense if you just accepted a $1000 tax credit you would likely save more because it is a lump sum since if you accepted a deduction you would only see a certain percentage of the $1000 actually taken off of the amount you owe.

4. Make sure the form filed is the correct one, because some tax incentives require certain forms. It is sometimes necessary to file a 1040 or “long form” as opposed to the 1040A or 1040EZ, which are shorter forms. Make sure you read the instructions thoroughly and ask a professional if you have questions or issues filling out the form.

5. Be careful of the Alternative Minimum Tax (AMT). The AMT doesn’t use the same guidelines as normal income tax. No matter how many tax breaks you are able to receive, you must pay the AMT, which is set in order to make sure everyone pays a minimum amount of taxes. If your income tax total is below the minimum amount, you will be required to pay the AMT.

You can start taking advantage of tax breaks today by finding out which ones you qualify for.

Ron Finkelstein is NOT a tax attorney or an accountant. He is plainly a small business owner who has paid out a ton of money throughout the years in order to understand tax tips like how many people take the standard deduction and tax deductions tricks. You can benefit from his knowledge by going over to his site at tax-deductions.info

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