The tax laws can get complicated depending on what kind of income you have and the allowable deductions that you can take.  Taxes are something that you can not get away from.  Eventually, they will find you. 

I have a few different tax related topics that I feel you should know more about.

Independent contractors or consultants

Independent contractors or consultants are group of people that have different requirements for filing than employees.  Employees pay their payroll taxes on each pay check that they receive.  Employees also pay a lower amount of Social Security and Medicare than Independent contractors.  However, independent contractors are able to reduce their taxable income by their business expenses.

The independent contractor needs to understand that there are three taxes that they are responsible.  They are Social Security, Medicare, and Income Taxes.  These all involve different calculations to determine the amount due for each tax.

The Individual Tax Return is the method that the Federal Government uses to collect these three taxes.  However, they throw in a curve.  They expect you to pay these taxes quarterly or else they will excess a penalty.  If you are an independent contractor, I would advise you to understand the requirement by seek a professional that can help you or research more by going to the IRS website.  www.irs.ustreas.gov

First Time home buyer’s Credit

This is a great credit for those who are eligible.  It is always good for the economy to have people owning their own homes.  The credit was available for the first time in 2008 for residence purchased in 2008.  If qualified, the taxpayer could elect to receive an interest-free loan from the government for $7,500.  Starting with your 2010 tax return, you will start paying the government back the loan, $500 for the next 15 years.

For residence purchased in 2009 (the government extended the credit to May of 2010), you actually get an $8,000 credit.  This credit could be claimed on you 2008 or 2009 tax return.  You will only have to pay it back to the government if you sell you house with in the next 36 months after purchasing the house or within the 36 months it ceases to be your main home.  Now there are a few exceptions, and if you are interested in them you can look them up on the IRS website.

BE CAREFUL, the IRS is stringently reviewing every claim for this credit.  To file for this credit you would use Form 5405 and you must provide a copy of the HUD loan documents showing that you purchased you residence under the HUD First time buyer program.   Without providing this documentation, it can delay your refund.  By claiming this credit you may not be eligible to E-file your return because of the additional documentation requirement.

Standard Deduction verse Itemized Deduction

The IRS allows you to use one or the other deduction to reduce your income.  You may not use both.  In most cases it is hard for the average person to have more itemized deduction than the standard deduction, but I would recommend checking because it can save you money.

The Standard deduction has increase this year.  The Standard deduction is differs based on your filing status.s:

Here are the standard deductions that apply to your 2010 taxes:

Some of the large itemized deductions are mortgage interest, property taxes paid on you main house, medical expenses*, and sales taxes

*Medical Expense deduction is only allowed for the portion that exceeds 7% of your taxable income.  For example, if you made $10,000, and your medical expenses were $1,000, you can only deduct $300.  The amount of medical expense that you can claim as a deduction is the portion that exceeds 7% of your taxable income.

Should you do your own taxes?

I came across this quiz and thought you might want to check it out.  It will test your knowledge and let you know if you might need to seek out a professional for assistance with your tax return(s).

http://moneycentral.msn.com/quiz/tax-iq-quiz/home.aspx

I hope that this is helpful.  Please feel free to contact me if you have any question or feel free to look it up on the IRS website.

Additional information

For Federal tax forms and publications use this link:

http://articles.moneycentral.msn.com/Common/Taxes/federal-tax-forms-and-publications.aspx

Tax Glossary

http://moneycentral.msn.com/taxes/glossary/glossary.asp

We invite all of you to get a discussion going.  Please submit your comments at the end of this article, Thanks.

Jim Richardson, C.P.A. www.jimrichardsoncpa.com