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Holiday Tax Relief Tip: Payroll Taxes

December 22, 2010 By

The Holidays Mean Parties, Giving, and Tax Relief!

There are employers who use the Xmas season to give their employees a party, gifts or a bonus. If you are an employee you don’t have to claim the worth of gifts. Employees only claim for a cash bonus. If you are an employer, Uncle Sam permits you to simply write off such costs but they must meet specific limitations.

A gift in common law differs from a gift bestowed by an employer. A common law gift is one that is given for no reason and only to please the recipient. Normally, an employer bestows a gift to an employee as a reward for previous service or as an incentive for forthcoming performance. Tax law recognizes these differences. If an employer wants to be disqualified from payroll taxes then Uncle Sam stipulates an employer’s gift ‘must be made generously with respect, admiration, charity or like impulses’.

An employer’s gift that is not liable for payroll taxes and is a deductible business cost is a ‘de minims benefit. This is according to the Internal Revenue Code Section 132(e) (1).

Any non-cash holidays gift from an employer to an employee is not within that employee’s salary and is not liable for payroll taxes. It is permissible to give items such as gift baskets, flowers and books. For such gifts to be non-taxable they must be a ‘low fair market value’. There are no exact regulations regarding the monetary worth of such gifts.

Employers are permitted to subtract the expenses of infrequent events such as picnics for employees and guest, birthday parties etc. Infrequent sports and theater tickets are also not liable for payroll taxes. However, a cash gift or gifts ‘easily exchangeable for cash’ is part of an employer’s earnings and liable for payroll taxes. Objects that can be swapped for cash like stocks are also taxable. Employees must show it on a tax return and employers are liable for extra payroll taxes.

HAPPY HOLIDAYS!

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Can Your Tax Debt Turn Into Identity Theft?

December 21, 2010 By

If you get a surprise call from a tax collector during this upcoming tax season, be aware that it may not be legitimate. Many people were getting behind on their taxes, and in 2004, the IRS hired third parties to determine delinquency and collect taxes. Dishonest scammers quickly took advantage of this new setup by posing as third party tax collectors on the phone. They use believable scripts and sound knowledgeable and professional, easily scaring taxpayers into submission. Under this façade, the actors obtained bank or credit card information to collect “payments” toward their victim’s debt. With this information, they are able to perform identity theft, exploiting a person’s credit and financial information for personal or institutional gain.

The IRS quickly became aware of these occurrences, though, and took steps to prevent people from exploiting the IRS’s power and taxpayer’s fear of IRS problems. Now, the IRS sends a letter to people who a legitimate collector will be calling. When possible, they provide the representative’s name who will be calling. Also, the IRS only accepts checks made to the United States Treasury, and any other requests for checks should be regarded as fraudulent.

There are also some tax debt settlement companies which will exploit the complicated processes of the IRS to make quick cash from taxpayers by offering their services. If a company or individual overpromises, check them out before talking to them. If it is unclear where their office is or if they have bad reviews, pay attention to these obvious red flags and protect yourself. When seeking to pay or to get help for your tax debt, follow your gut feeling regarding whether you should trust the person you are talking to. The IRS is not out to get you, they are out to collect debt rightfully owed to them by federal law.

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Creative Ways to Solve Your IRS Problems

December 20, 2010 By

Unexpected bills from a dog bite? Your child colored all over your tax forms? They flew out the window when you were driving? You decided this year to operate on the Mayan calendar? Excuses won’t help you when you have to solve your IRS problems. However, once you have passed the stage of denial, there are creative ways to solve your problems with the IRS.

The best way to start is to network with tax attorneys. Tax attorneys know the law and will know how to find gaps and loopholes. Everyone’s situation is different, and the law recognizes that while trying to create a standard regulation. However, standard regulations do not fit everyone, and they may not fit you. By talking to tax attorneys and tax professionals about your IRS problems, you may be able to reveal something that makes you an exception. Attorneys are also spin doctors, and they may be able to ask you enough questions to reveal the facts of your case from an angle you may not have considered.

You may not be aware that the dry substance of the Internal Revenue Code is actually a living, changing document, even if the text which pertains to you has not changed. In that text, there is more than meets the eye, including documented interpretation of the law following the creation of the Code such as cases, statutes, and amendments. A tax attorney can evaluate Congressional intent in creating the particular law that applies to your situation. He or she can read the legislative history of the regulation, locate ambiguities, and adapt the interpretation of your set of facts to those ambiguities. On top of that, an attorney can compare your case to similar case law which has your desired outcome. If little or none exists, he or she can creatively distinguish those cases from your set of facts, using creativity to find a way to help you resolve your IRS problems.

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Compromised Finances? Make an Offer in Compromise!

December 17, 2010 By

If a taxpayer cannot pay his or her taxes completely, the IRS allows for relief. Taxpayers can negotiate an agreement with an IRS which states that they do not have to pay their entire debt. This agreement, called an Offer in Compromise, is based on the taxpayer’s inability to pay their full debt.

There are three types of Offers in Compromise: Doubt as to Collectability, Doubt as to Liability, and Effective Tax Administration. Doubt as to Collectability means that the IRS has determined that the taxpayer may never be able to repay his or her debt. Doubt as to Liability means that the IRS has determined that the amount may not be correct. This could be based on the tax examiner’s misinterpretation of relevant tax law, the tax examiner’s failed consideration of the evidence, or new evidence from the taxpayer. Effective Tax Administration is a status of Offer in Compromise allowed when the taxpayer offers sufficient evidence that having to pay their debt would cause an economic hardship for the taxpayer which would be fair and inequitable.

There are three ways for taxpayers to pay their debt once they have reached an agreement of Offer in Compromise with the IRS. They may choose to make a lump sum cash offer, a short term periodic payment offer, or a deferred periodic payment offer. The lump sum cash offer consists of five or fewer installments upon written notice of acceptance. The short term periodic payment offer must be paid in regular installments within 24 months from the date the IRS received the offer. The deferred periodic payment offer must be paid over the remaining statutory period, and regular payments must be made during the investigation. For all payment options, the taxpayer must pay the $150 fee upon filing Form 656 – Offer in Compromise.

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You May Be Entitled to Innocent Spouse Relief

December 16, 2010 By

If your former spouse caused you to get a notice of understated back taxes, you do not necessarily have to pay them yourself simply because you filed jointly at the time. If you are able to prove that your return from that year included understated taxes due to your spouse’s error, this may mean that your spouse is responsible for the difference. To be granted innocent spouse relief, you must prove that you did not know, nor did you have reason to know, about the understated taxes. You must also prove that it would be unfair to hold you liable for this understatement.

The IRS views knowing or having reason to know about the understatement of taxes as “actual knowledge” or a “reason to know”. “Reason to know” means that a reasonable person under similar circumstances would have known of the understatement. Erroneous items include unreported income and incorrect deductions, credits, or property basis. You may also be entitled to innocent spouse relief for a portion of your debt if you are able to prove that a portion of the debt is erroneous.

To file for innocent spouse relief, a taxpayer must file Form 8857. That form can be used to cover more than one year’s worth of a request. Form 8857 must be filed separately within two years of the first collection activity against you. On the form itself, there are descriptions of the documents required to submit to get innocent spouse relief.

If you fear repercussions from your spouse, you have other options. As the IRS suggests on their website, you may want to consider filing an Offer in Compromise Doubt as to Liability; this may relieve you of the responsibility to pay that debt. Before filing for innocent spouse relief, it will probably help you to consult a tax professional to find out if you qualify.

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Wage Garnishments Are Not a Side Dish

December 15, 2010 By

When you owe the IRS money, they will get it from you. If you own property, they will put administrative ownership over it in the form of a lien. If you have a paycheck, they will take your wages by garnishing them, and not in the way a bartender garnishes your drink. Garnished wages are a form of levy put on what you own in order to pay back your tax debt. If the IRS determines that they are going to garnish your wages, they will notify your employer.

Garnished wages can be stopped, however. You can make an arrangement with the IRS to avoid garnishment or to stop it once it has started. You can pay the IRS in full, enter into an agreement where you pay in installments, attain the status of being not collectible, or declare bankruptcy. You can also change employers or quit your job.

However, the IRS cannot take all of your wages. They have to allow you to cover your required expenses based on national averages. They can garnish up to 80% of your wages, and must leave at least 20% alone. They can seize salaries, commissions, bonuses, wages, retirement money and pension earnings. Even though the IRS cannot take all of your wages, the portion that they do take will be significant. National averages are probably lower than what you think you need to support yourself.

To avoid having your wages garnished, it is important to pay back taxes, child support, creditors, and any court settlements. The IRS can only garnish your wages for failure to pay back taxes, but the federal government can garnish your wages for other negligence. A judge can order your wages garnished for child support and court settlements, and creditors can request to have your wages garnished through a court order to pay back your debt.

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What Will Happen With Dividend Tax Relief in 2011?

December 14, 2010 By

A dividend tax is classified as an income tax which is placed on dividend payments to stockholders. There is controversy over the fairness of these taxes. Those against the tax argue that it is a double tax. The company has already paid corporate taxes on their profits, and abolitionists argue that this means the shareholders have been taxed already. On the contrary, supporters argue that a corporation is an entity of its own, which means that it is able to take advantage of public goods and services and should be taxed for that.

Dividend tax relief, however, is available. Former President George W. Bush approved the Tax Increase Prevention and Reconciliation Act of 2005, which allows dividend earners a reduced tax rate on their earnings in order to eliminate double taxation. The Act was put in place in part to encourage more investors to enter the market because they no longer would fear unnecessary taxation. With more investors, companies can gain the capital needed to grow their business. However, others argue that lowering dividend taxes only had benefits for the rich.

Now Congress is debating whether to extend the dividend tax relief. Currently, dividend tax rates are at 15%, and if the Act expires, dividend tax rates may increase to as high as 40% for some wealthier investors. President Barack Obama, however, proposed to extend the dividend tax relief at a rate of 20%, which is still lower than 39.6% taxation of dividends and would otherwise return in 2011 under the Act. However, many argue that these changes will not be enough to meet Obama’s budget goals this year because the 20% tax relief rate is essentially a loss for the federal budget. Because of the absence of the increase to 39.6%, the budget would have to be supplemented in other ways, making the extension of dividend tax relief unlikely.

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After 3 Years of Unfiled Tax Returns, Snipes Finally Pays…

December 13, 2010 By

Actor Wesley Snipes, best known for his role as a daywalker vampire in Blade, finally reported to federal prison in Lewis Run, Pennsylvania Thursday after three years of unfiled tax returns. Snipes was convicted of three misdemeanor counts of failing to file a tax return. He did, however, escape more serious charges with the argument that he himself was a victim of bad tax advice. Snipes’ sentence in the minimum security prison is three years long, complete with prison chores and head counts.

Snipes grossed over $37 million from 1999 to 2001, during which he amassed an indebtedness of $2.7 million in unfiled tax returns.

On Larry King Live, during his last interview before serving his sentence, Snipes attempted to gain public sympathy for his disregard of tax policy by claiming juror impropriety. He also continuously claimed he was not a conspirator in a tax protest scheme. The jury never claimed he was.

Snipes continued to develop his image as a victim of the people who did – or didn’t – do his taxes, accusing the press of failing to report that he “was a client of people who [he] trusted [who] had knowledge and expertise in the areas of tax law that would protect [his] interests.”

The press did, however, report that he said they didn’t report it. Snipes offered no other coherent excuse for his unfiled tax returns.

Regardless of whose client you are, it is each person’s individual responsibility to ensure that they follow the rules, and Snipes’ last days as a free man were used to point fingers. Shame on you, tax advisors, for not coddling the man who grossed $37 million and never fulfilled his obligations as a taxpayer. Now, ironically, he will be living on the dollars of people who did pay their taxes.

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Can You Declare “Currently Not Collectible”?

December 10, 2010 By


Yes, the Internal Revenue Service does have a conscience. If a taxpayer has met severe hardship and cannot pay his or her debt to the IRS, he or she can request Status 53. When a taxpayer’s debt is placed in Status 53, it receives the status of Currently Not Collectible, which means exactly what it sounds like. While the taxpayer is designated Currently Not Collectible, the IRS will not require collection of that person’s debt.

To achieve this status, the taxpayer must provide supporting documentation that proves they have met legitimate financial hardship. It is important to be aware that the IRS turns a discriminating eye on every attempt to attain Status 53, and requires documentation of every financial detail before placing a taxpayer in Currently Not Collectible status. Any fraudulent or frivolous attempts to be placed in Status 53 carry severe, even criminal, consequences. This means it is important to consult a tax attorney or financial advisor before filing.

Hardship status is a subjective standard based on the taxpayer’s gross monthly income as compared to national averages of “allowable expenses”. “Allowable expenses” include necessities like food, clothing, housing, transportation, medical expenses, and insurance. “Allowable expenses” are also determined based on local standards and the size of the taxpayer’s household. Status 53 can be granted even if the taxpayer’s expenses are extraordinarily high in comparison to the national averages due to medical bills for themselves or a loved one.

Taxpayers are required to continuously provide supporting documentation for their ongoing hardship. The taxpayer is also required to notify the IRS of any changes in their financial status. Status 53 is a little-known IRS status, and may provide necessary relief to a taxpayer with an extraordinary tax burden.

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Holiday Tax Relief Tip: Charitable Giving- Careful Planning

December 9, 2010 By

Charitable Gifts Require a Good Heart But, Careful Thought

Not many taxpayers realize it is very easy to muddle up a charitable donation left under your Will and Trust. Your heart may be in the right place but your good deed may become extremely complex. For example, your request must be clearly understood and it must have all the necessary IRS requirements. If you leave out any of the requirements it is extremely hard to put right. This may require expert advice in order to avoid a seemingly tiny error that results in a massive complication.

  • You must use the correct name of the charitable organization. Be safe and make contact with the charity. If your donation is anonymous simply don’t reveal your identity.
  • A charity must be an accepted 501(c) (3) organization according to the Internal Revenue Code.
  • Stipulate the money is only to be awarded to that charity if it is still in existence at your death.
  • You can either leave a donation that is to be used as the charity sees fit or you can stipulate exactly how you want the donation to be used. Example, you could leave a donation to a certain child care organization to be used for their feeding scheme. Bear in mind such a fund may no loner exist at your death.
  • You must decide on a Will or Trust. Charities that are registered do not pay income tax. Retirement accounts left to them are not taxed. The same accounts left to family or friends are substantially taxed. If you leave $300,000 to charity they keep the full amount. If you leave $300,000 to family or friends they get $200,000 and the IRS takes $100,000.
  • You could give a donation in your lifetime. A donation of $300,000 that is received in twenty years time means the charity gets the full amount plus interest without being taxed.

For more holiday tax relief tips, click here!

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