How many times have you heard someone say, “I don’t pay any taxes. My accountant takes real good care of me . . . I haven’t paid a dime in taxes in years.”
Does that outrageous statement sound familiar?
Maybe it’s your brother-in-law, or a fellow Soccer Mom, or a co-worker at the office.
And so you think to yourself, “What am I doing wrong? How come I’m paying taxes and so-and-so says he/she pays nothing? How do they do it!”
Is it really possible to pay “zero taxes”?
For purposes of this article, let’s give your “no-tax” friend or relative a name. Let’s call him “Charlie” (or if he is a she, just think “Charlene”).
OK, what is Charlie up to? What’s his secret?
Charlie has no secret. He’s not doing anything that you should be doing. Do not be envious of Charlie, and here’s why . . .
I can think of at least five reasons you should ignore whatever Charlie says about his “no-tax” situation.
REASON #1: Charlie is a liar. Every family has one, so don’t feel bad. Let’s face it, some people just like to indulge in fabrications to make themselves feel good. Charlie is telling you a big fat lie because Charlie has “issues.” ‘Nuff said?
REASON #2: Charlie is pond scum. OK, hear me out on this one. I don’t mean to offend you if Charlie is a close and dear relative, or your best friend, but I’m going to give it to you straight: Charlie cheats on his tax return, and he cheats big time. There are plenty of folks out there like Charlie. He’s one of the reasons that you and I pay so much in taxes — he doesn’t report all his income, and he deducts bogus expenses by the thousands.
He and his accountant may even be in cahoots on this. Charlie brings in his records and his accountant crunches the numbers, then calls Charlie and says, “You owe $5,000.” So Charlie rummages around in his files and somehow manages to come up with another batch of expenses that miraculously
reduce his balance due to zero. It’s like magic!
End result: Charlie’s tax return is a big lie.
Charlie is a thief. Charlie should be put in jail for the tens of thousands in taxes he has illegally withheld from the government over the years.
REASON #3: Charlie is stupid. Again, I’m sorry if I’m being too hard on Charlie. But some people are so clueless about taxes that if they have no balance due on their return, or if they are getting a refund, they mistakenly believe they didn’t pay any tax that year.
And believe it or not, this is actually a very common misconception that thousands of people cling to. Ah, to be so blissfully ignorant!
I hope you are not so naive to think that the “bottom line” on your tax return tells the whole story about your tax liability. It doesn’t.
REASON #4: Charlie is broke. Charlie may actually pay zero taxes because –are you ready for this one? — Charlie doesn’t make any money!
Charlie owns a small business or works full-time at his self-employment activity, and Charlie may rake in hundreds of thousands in income from sales of his product or service — but Charlie’s business spends more than it brings in, and Charlie’s business has a loss every year.
So Charlie doesn’t really have a tax problem. Instead Charlie has any number of other problems. He has a marketing problem, or a management problem, or a personnel problem. Charlie’s business is failing, and paying zero taxes is just a symptom of a business that will eventually close.
REASON #5: Charlie is just scraping by. Charlie’s business may not be losing money every year, but it’s not really making much either. He has a small profit — enough to keep him busy. His business may even “look” profitable, but it’s really the classic shoestring operation.
So now, I ask you, do you really want to pay zero taxes? People who don’t pay taxes are usually in one of these five categories: Chronic Liars, Pond Scum, Stupid, Broke, or Just Scraping By.
The purpose of business is to be profitable.
The unavoidable result of a profitable business is taxes. And yes, you should do everything legally possible to reduce those taxes. But if you are going to be successful, you are going to pay some taxes.
When it comes to taxes, stay away from Charlie.
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There are many websites on the Internet today that gives much needed income tax help for those who have no idea of what’s going on during tax time. Income tax is a tax paid on income, unfortunately no matter how little it is. It’s paid by employees and people who are self-employed and may also be payable if you are not working but you have an income, such as a retirement pension or an occupational pension. Not all types of income are taxable and it will seldom be the case that all of your income is taxed. There is no minimum age at which a person becomes liable to pay income tax. What matters is your income. If this is below a certain level, no tax is payable. There is actually no single definition in tax law of income. Income tax law divides various types of income into schedules. If an item comes within a schedule it counts as income and income tax must be paid on it. The way the tax must be paid will depend on which schedule it falls into. The most common schedules are Schedule E for employees and Schedule D for the self-employed.
There are five main steps in calculating income tax:-
Step 1: Add together all your yearly income, including social security benefits, income from renting out accommodation, wages, occupational pension, interest from bank and building society accounts.
Step 2: Take off any income which is exempt from tax. Calculate whether you can claim tax relief on any of the money you have spent over the year (tax relief usually applies to people who are self-employed and have to buy items for the business). Deduct this tax relief. This leaves income on which tax may be payable (taxable income).
Step 3: Work out which tax allowances you are entitled to. You will be entitled to a personal allowance (plus age related additions if appropriate). These allowances are deducted at this stage in the calculation.
Step 4: Multiply the taxable income by the correct tax rate. This gives the tax due to be paid that year, unless you are entitled to married couple’s allowance for over 65 year olds.
Step 5: If applicable, deduct the appropriate percentage rate of married couple’s allowance for over 65 year olds.
Some income is exempt from income tax, which means that tax is never paid on this income. This income should therefore be put to one side before any tax calculation can be done. Examples of income which is exempt from tax include premium bond prizes, housing benefit, child benefit and profit-related pay. It is therefore necessary to check whether any income is exempt from tax before doing a tax calculation. For more income tax help, all the help you need in on the internet. The IRS itself can give you income tax help and answer any tax questions you may have.
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