Newsletter -- 8/26/09 !!!

Hi, everybody! Here's a newsletter!

MUSIC:

I've been very much enjoying live Flamenco shows at the Fountain Theatre. I'm also very excited to be going to see Chick Corea, Stanley Clarke and Lenny White performing at the Hollywood Bowl next week!

I'm going to be performing more myself, but no dates are set just yet. I'll keep you all posted. Here's what some folks said after my last concert: "Soaking me in music straight to the bones ... JoJo's music ... takes hold of your innermost and compels you to close your eyes and feel it, imagine it, savor it. It brought about a rush of inspiration. Genius...." "I think you are amazing. It was astonishing...." You can hear parts of that concert at MySpace and Facebook.

NUMBERS:

If you've heard the rumor that the "Cash for Clunkers" money is taxable, well, it is – but only to the auto dealers, not to the consumers. So unless you're an auto dealer, don't worry about it.

The deadline for filing your personal income taxes, if you filed an extension last April, is Thursday, October 15th, just 7 weeks away. If you need any help getting your taxes done, either by way of pre-tax prep bookkeeping, or preparing your tax returns, I'd be happy to help you. I'm a registered tax preparer in California (since 1993), and I'm a certified QuickBooks Pro Advisor. I also studied Accounting in college. (Yup, a real yawner, except that I understood the stuff and didn't do much yawning – and I got stuck with the job of tutoring the rest of the students before class!)

My tax & bookkeeping website is www.theZcorp.com.

WORDS:

I also mess around with words. I love writing (you can see some of my older poems and essays here). But more to the point, I do transcription/word processing (typing 150 words per minute) – legal, medical, insurance, high tech, you name it. I can also fix up your grammar, etc., on request (it's a built-in part of the service!) See www.theZcorp.com for more info.

HUSBAND:

My husband is a great web programmer. The latest craze is setting folks up with "CONTENT MANAGEMENT SYSTEMS", whereby you can very easily make changes to your site's content all by yourself, and not have to keep forking out the bucks to web programmers every time you want to tweak something or change a date or add a new product. You can get more info at www.ZCoding.com.

That's it for now – see you next time!

All sorts of appropriate closing greetings, (ha!)

JoJo

Auto Dealers Aren't Quite So Happy Now...

Auto dealers have recently learned that they will owe tax on the rebates they received from the "Cash for Clunkers" program.  Consumers won't owe any tax on these rebates, but the car dealers will.  There is a rumor going around the Internet right now that consumers will be owing tax on this; it's not true.  However, the auto dealers will definitely be forking over the bucks.  Surprise !!!

What Are Itemized Deductions ?

Hi everybody !!

I thought I'd write a few posts on the lovely subject of taxes, so y'all can better understand them and hopefully pay less tax (legally) !

The subject of this post:  What are "Itemized Deductions" ?

First we need to define "Adjusted Gross Income (AGI)".  A simple definition would be:  The sum total of your various incomes (wages from employment, net income [profit] from your own businesses, interest and dividend income you received, unemployment compensation, etc.), MINUS certain deductions (such as certain educator, tuition and moving expenses, alimony you paid, your IRA contribution, etc.).  So they take your total income and subtract a few things (if you have them).  Now you have your AGI.

The IRS then automatically "gives" you a "standard deduction" – a certain dollar amount they are kindly allowing you to subtract from your income to cover some of your expected cost of living expenses.  For 2009, the standard deduction for a single person (or married filing separately) is $5,700; married filing jointly $11,400, etc. (there are some other categories, as well).  See this IRS article.  This "standard deduction" is deducted from your AGI.  This lowers the amount of income that you would then be taxed on." In other words, the deduction is not subtracted from the taxes you owe, but rather, it is subtracted from your AGI before any tax is calculated.

Okay.  So you automatically get that "standard deduction".  However, if your actual qualifying personal deductions exceed the amount of your standard deduction, then you can (and usually should) claim your actual deductions instead !  These are called itemized deductions (because you are going to itemize them – list them out – on a form which is attached to your tax return).  The form is called "Schedule A".  A "schedule" is "a list of things" or "a list of details attached to a legal document".

Each of these itemized deductions has its own various bizarre rules about how much of it you can deduct (if you can deduct it at all).  I won't go into those rules here – there are lots of them.

Some of the more common "itemized deductions" include:

Medical Expenses
Taxes Paid (such as Property Tax, Sales Tax -or- State Income Tax paid, DMV registration tax, etc.)
Mortgage Interest
Charitable Contributions
Unreimbursed job expenses (when you are an employee somewhere)
Safe Deposit Rental Fees
Money you paid to have last year's taxes prepared

There are more deductions than just the above, and again, there are plenty of rules regarding itemized deductions – not all the things that you might consider "medical" are deductible, for example.  If you don't know all about itemized deductions, you could be missing out, or you might be claiming something you can't claim (leaving yourself open to a future audit).

There is one more thing subtracted from AGI before you arrive at "taxable income" – Personal Exemptions." In 2009, you get to deduct $3,650 for each person listed on your tax return, such as yourself, your spouse, and your dependent children, for example (this is a simplified but sufficient definition).  See this IRS article.  So if it's just you, you get "1 exemption" and deduct $3,650 from your AGI. If it's you, your spouse and 2 children, you get "4 exemptions" and deduct $14,600 from your AGI.

And now you have arrived at your Taxable Income, on which your tax is calculated !  Of course, it doesn't end there – your tax return isn't done yet !  The U.S. Tax Code now exceeds 60,000 PAGES (which contain plenty of conflicting data).  You can visit www.fairtax.org to help fix the system !!!

But there is the basic data !

Cheers,
JoJo Zawawi
Registered Tax Preparer
QuickBooks Certified Pro Advisor
Tel. 818-243-7721
www.theZcorp.com

What Are All These Taxes I Pay ?

There are various taxes one pays.  Here are the main ones:

Income Tax – Federal & State

The Federal Government taxes your income.  Most U.S. states also tax your income.  This tax is withheld from your paycheck ("Federal Withholding" and "State Withholding", also known as "PIT" – Personal Income Tax) and sent by your employer to the IRS.  If you are self-employed, you are responsible for paying this yourself by way of estimated tax payments at intervals throughout the year.

Most types of income are taxable – the following is a general guideline, but is not by any means a comprehensive list:

– Salary and wages you received (including bonuses and most fringe benefits)
– Income you earned from self-employment – this would even include income earned from selling stuff on eBay !
– Commissions you received
– Unemployment benefits you received
– Sick pay (but not Workers' Comp)
– Disability payments received (except for certain severe, permanent physical injuries, Veterans Administration disability pensions and certain other similar items)
– Alimony you received
– Interest income; Dividend income
– Rental income
– Some Social Security benefits (depending on various rules)
– And more !  This list is not comprehensive; and there are, of course, all sorts of exceptions and rules about stuff.

The following states do not tax your income: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.  Two others, New Hampshire and Tennessee, tax only dividend and interest income.

The amount of income tax varies, depending on how much you make.  You are penalized for doing well:  the more you make, the higher your tax rate is.  Your tax rate also changes depending on your filing status (i.e., Single, Married Filing Jointly, Married Filing Separately, etc.).  Rather than go into an explanation of the tax rates, if you're feeling brave, you can look at this article and then page 13 of this IRS publication (it's a PDF file).


FICA Tax (aka Social Security Tax)   &   Self-Employment (SE) Tax

"FICA" stands for "Federal Insurance Contributions Act".  FICA is also known as Social Security Tax.  It is composed of OASDI ("Old Age, Survivors and Disability Benefits") and Medicare.  The OASDI rate is 6.2% of the first $106,800 of your earnings (as of 2009).  Anything you make over $106,800 is not taxed to OASDI.  The Medicare rate is 1.45% on all of your earnings.  Furthermore, your employer matches these amounts, so the total OASDI tax being paid on your behalf (by you and your employer) is 12.4% of the first $106,800, and the total Medicare tax being paid on your behalf (by you and your employer) is 2.9% of all your earnings.  So for somebody who makes less than $106,800, you are personally paying 7.65% FICA tax on your earnings, AND your employer is kicking in another 7.65%, for a total of 15.3%.  See this article.

And that 15.3% is a number which self-employed people are likely familiar with – it is called Self-Employment Tax (SE Tax), and is the same as FICA, except that because you are self-employed and don't have an employer to kick in half of it for you, you get to pay ALL of it (15.3%).  Of course, this follows the same rules as above – you pay 12.4% OASDI tax on the first $106,800, and you pay 2.9% Medicare tax on all of it.


State Disability Insurance (SDI) – California

This is a California state tax which is withheld from your paycheck.  The 2009 rate is 1.1 on the first $90,669 of your wages.  See this article.


Federal Unemployment Insurance (UI) – FUTA (Federal Unemployment Tax Act)

This is a tax paid by the employer only.  It is not deducted from your pay check.  The FUTA tax rate is 6.2% of the first $7,000 of taxable wages the employer has paid to you.  Because the employer is often also paying Unemployment Tax to the state, the employer usually gets a credit of up to 5.4% against this FUTA tax.


Unemployment Insurance (UI) – California

This is a California state tax which is paid by the employer only.  It is not withheld from your paycheck.  The rate varies depending on your business type, anywhere from 1.5% to 6.2% of the first $7,000 of wages paid to the employee.  Most new employers are required to pay a rate of 3.4% for Unemployment Insurance (UI) for up to three years.  This is referred to as the "employer's contribution rate."  After that, an employer's contribution rate is determined by his/her experience rating and the condition of the UI Fund.  This program was not in effect in 2009 (don't ask me why !).  See this article.


Employment Training Tax (ETT) – California

This is a California state tax which is paid by the employer only.  It is not withheld from your paycheck.  The rate is 0.1% of the first $7,000 of wages paid to the employee.  See this article.


Other Taxes

There are plenty of other taxes around, the most notable of which is Sales Tax.  Various states, counties, cities, etc., have their own sales tax rates.  The combined rate for somebody living in Los Angeles County is 8.25%.  Click here for a list of California cities /counties and their tax rates.

And don't forget about Property Tax ! Homeowners will definitely know about this one.

Furthermore, folks living in Los Angeles or doing business in Los Angeles will discover that they have Los Angeles City Business Tax.

And there are lots of other taxes, too – fuel tax, alcohol tax, tobacco tax, and lots, lots more.  I won't go into them here.


You can find a lot of info on the internet about taxes.  If you find it confusing, it's because it is confusing !  The IRS and other tax agencies tend to go out of their way to make things confusing – it makes it harder for you to be in control over it.  Looking up words that you encounter will help you to understand the stuff.  And you can always contact any tax agency with your questions, or ask your tax professional.

U.S. citizens spend $265 billion each year (three years’ worth of spending on the Iraq war) just measuring, tracking, sheltering, documenting, and filing our annual income tax returns.

If you are sick of paying these overly burdensome taxes and would like to help get rid of them, check out these web sites:

www.FairTax.org – The Fair Tax grassroots organization – abolish the IRS !
www.ronpaul.com – Ron Paul is a politician who wants to abolish the IRS entirely !


I hope this post has been helpful !  It was pretty exciting writing it.  (Oh, yeahhhh !)   :D

Cheers !,
JoJo Zawawi
Registered Tax Preparer, State of California
Certified QuickBooks ProAdvisor
www.theZcorp.com
Tel. 818-243-7721