This year we celebrate Tax Freedom Day on Wednesday, April 23. That’s the day we stop working for the state, local and federal government and start working for ourselves. For average workers, all of our earnings for the first 113 days of the year go to pay federal, state and local taxes.

A week after the House of Representatives passed their version of the economic tax stimulus package, the Senate has passed their own modified version. The Senate version is very similar to the House version, differing mainly in the extension of the tax rebate to low-income seniors and disabled vets.

Freemoneyfinance.com has a good article regarding how we going to pay for the tax stimulus package.

Here’s the deal on the economic stimulus package:

Single filers making less than $75,000 will get a $600 tax rebate and couples making less than $150,000 will get a $1,200 rebate. On top of this, parents will receive an additional $300 per child. On top of this, tax filers who do not owe income taxes but have at least $3,000 in income will get a $300 rebate.

According to Treasury Secretary Henry Paulson, the IRS will start sending out the checks in May.

My accountant called me the other day and requested our paperwork. I currently own 3 businesses and it is a real chore getting all of the information together for the IRS.

Tax Tools:

H&RBlock
Turbo Tax
MSN Money Tax Tools

For Business:

I have to do a an inventory for 1 of my businesses which takes at least 8 full hours of my time. I need to print the balance sheets and profit and loss statements for all 3 companies. 2 businesses go through a C corporation and the other business goes through my schedule C which is attached to our 1040 Federal Income Tax.

For Personal:

We need to get together our vehicle tags, mortgage interest, health care payments beyond our insurance, interest income,W2′s, charitable contributions, property purchase and sale documents (we bought a new house this year and sold a condo investment). I also have to get the information together for my internet income and the accountant will put this information through a schedule C which goes through our 1040 Federal Tax form. Schedule C is where you put all of your sole proprietor income and expenses. The other businesses go through a C corporation.

It is amazing that it takes so much time to get this information together for the local, state and federal government. Not to mention payroll taxes, sign taxes, usage sales taxes for state and for city. We do most of these taxes in house. At the end of the year we provide all of this information to our accountant and he fills out all of the necessary forms. He also lets us know if we forgot anything which saves us money. I have an accounting degree, but I don’t have enough time to keep up on the tax code, and like a lawyer(only a fool represents himself).

It doesn’t make any sense to borrow from peter to pay paul and then tax paul to pay peter. This plan will increase the deficit by another 150 to 250 billion dollars. What do you think?

Here are is the jist of the economic stimulus plan.

Sources on Capitol Hill and at the Treasury Department said the plan would send checks of $600 to individuals and $1,200 to couples who paid income tax and who filed jointly.

People who did not pay federal income taxes but who had earned income of more than $3,000 would get checks of $300 per individual or $600 per couple.

A Democratic aide and Republican aide said there will be an additional amount per child, which could be in the neighborhood of $300.

Those who earn up to $75,000 individually or up to $150,000 as a couple will be eligible for the payments, said Republican and Democratic sources familiar with the tentative deal.

1. Treat your savings accumulation like a bill, and pay yourself first.

Before paying those bills make sure you pay yourself first. 10% is a good place to start. Increase it as often as you can to retire in the lifestyle that you would like.

2. Take full advantage of retirement accounts.

Tax free retirement accounts are the closest thing you can get to free money. You get to build your savings in tax deductible or tax deferred retirement accounts. A 401K when matched by an employer really amplifies the affect of this retirement savings plan.

3. Automate your savings

Setup a direct deposit from your paycheck to your savings account. You won’t even notice the money missing from your account after a while. The money comes out before you can consume it by buying Latte’s. See the Automatic Millionaire blog entry.

4. Create other sources of income

Get a side job. Find something you like to do on the side and make money at the same time. You really don’t want to waste time watching another rerun of The Simpsons do you?

5. Use windfalls and raises to save and pay down debt.

When you receive a windfall from a tax return of from a raise pay down your debt and/or put money into savings. You won’t miss it because you never received it in the first place.

6. Use Coupons

I personally use coupons to OfficeMax/Office Depot al the time. I get $10 off $50 spent on office supply products. There are hundreds of ways to save money using coupons. When your doing some home renovation look for coupons from Ace, HomeDepot or Loews. When we moved into our new house Loews sent us a $100 off coupon. I was amazed. If you are going to buy the products anyway you might as well save money doing it.

7. Cut down on impulse buying and avoid buying unnecessary stuff.
Do you really need that X. Wait a day or 2 and think whether you really need that thing you thought you couldn’t live without.

8. Reinvest interest and dividends from investments.
A painless way to beef up your investments is to reinvest any interest and dividends and give your investments a chance to build.

9. Request a lower income withholding from your paycheck
Look at the past year and see if you paid anything in taxes. If you didn’t pay any taxes your withholding may be set too high. Lower your withholding and take the excess money that you would have paid and put that money into savings or debt reduction. If your withholding is too high you are giving the government a tax free loan for the year. You might as well take the money and use it to your advantage.

See my article on Alternative Minimum tax here
which explains why the tax was enacted.

Here is a little snippet:
The alternative minimum tax is an extra tax some people have to pay on top of the regular income tax. The original idea behind this tax was to prevent high income people from using special tax benefits to pay little or no tax.

Here is what the congress did to fix the problem temporarily:
For years, Congress has passed one-year patches aimed at minimizing the impact of the tax. For the 2007 tax year, a patch was passed on 12/20/2007, but only after the IRS had already designed its forms for 2007. The IRS will have to reprogram its forms to accommodate the law change, creating potential delays in income tax refunds for 2007.

See the Wikipedia on Alternative Minimum Tax

AMT Facts:

The Urban-Brookings Tax Policy Center says the AMT will hit 3.6 million out of the nation’s 131 million taxpayers filing for tax year 2005 (filed in early 2006), and could affect 31 million by 2010 if nothing is done.

The alternative minimum tax is an extra tax some people have to pay on top of the regular income tax. The original idea behind this tax was to prevent high income people from using special tax benefits to pay little or no tax. But for various reasons the AMT reaches more people each year, including some people who don’t have very high income and some people who don’t have lots of special tax benefits. Congress is studying ways to correct this problem, but until it does, almost anyone is a potential target for this tax. Many people will get hit with this tax in 2008 if the Congress doesn’t do something about it. The problem is that if they wait much longer it will be very hard for the IRS to implement this new code into their system. It takes 3-6 weeks to implement new code into the system and we are running out of time for the 2007 taxes which are due in 2008.

The AMT provides an alternative set of rules for calculating your income tax. In theory these rules determine minimum amount of tax that someone with your income should be required to pay. If you’re already paying at least that much because of the “regular” income tax, you don’t have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.

You can have AMT liability because of one big item on your tax return, or because of a combination of many small items. Some things that can contribute to AMT liability are mundane items that appear on many tax returns, such as a deduction for state income tax or interest on a second mortgage, or even your personal and dependency exemptions.

See Top Ten Things that Cause Alternative Tax Liability.

If you use computer software to prepare your tax return, the program may be able to do the AMT calculation. If you’re preparing a return by hand, the only way to know for sure is to fill out 6251 Form in PDF Format and Instructions in PDF Format — which is a tough process.

Checkout these sites on the alternative minimum tax:

IRS Alternative Minimum Tax

Wikipedia on AMT

SmartMoney on AMT