Posted by LWM Team on Wed, Aug 25, 2010
IRS Tax Audits Are The Rise
None of us can be certain the IRS won’t call after taxes have been filed. The fact is, audits are going up every year. The IRS wants to improve ways to catch delinquent taxpayers. $400 million is set aside for IRS enforcement of tax in 2010. Notifications of audits are sent out eighteen months following the filing date. An audit this time round is due to your 2008 tax returns.
It is to your benefit to take action as soon as you are aware of a tax difficulty. You have thirty days following a first notification to respond to the IRS. If you don’t reply within the thirty days, substantial tax penalties will be issued to your account by the IRS collections department. In the event that the thirty day grace period is insufficient time to sort out your affairs, apply for a postponement. Normally, the IRS will be amenable if you have to find relevant records.
An audit can become complicated for the average taxpayer. It does help your case to have the assistance of a certified tax professional to guide you through all the twists, turns and demands of an IRS audit. They may request complex documentation that needs specialized help. In the case of a person to person meeting with the IRS the tax professional will represent your case and avoid unnecessary mistakes.
It is important to understand that an in-person meeting with the IRS for the purpose of an audit is like being in a court of law. ‘Anything you say can and will be used against you in a court of law’- this is not an exaggeration and you may even end up being accused. It’s advisable not to say anything and leave it to the tax professional representing you.
If you are not satisfied with the auditor’s conclusion, you may ask to speak with their supervisor and request an appeal. The IRS will comply only if they see they can’t win in court. However, there is no point in using the legal system for an amount under $10,000.
Posted by LWM Team on Mon, Aug 23, 2010
941 Tax Mistakes
Many new employers find payroll reporting confusing. Currently the 941 Payroll Tax Form must be filled in the 2nd quarter of 2010. The new Hiring Incentives to Restore Employment Act (or HIRE) adds further confusion. According to this Act, all employers who hired new staff members later than February 3, 2010, who were out of work for the last sixty days or who worked under forty hours, get a tax break for each employee. It is usual for an employer to pay what the employee pays towards the withholding of Medicare and Social Security. Due to the Hiring Incentives to Restore Employment Act, an employer is exempt from paying the Social Security share for those fresh employees.
A BNA article claims 941 difficulties are being noticed by the IRS. The 941 forgiveness modification is presently made after working out the complete amount of Medicare and Social Security. Employers are placing the forgiveness modification on the incorrect row. EIN and math errors are occurring, and the IRS must attempt to make corrections but, if the corrections cannot be made, employer will be asked to supply further information. If the employer fails to provide the information requested, the 941 will be processed with no forgiveness adjustment.
The IRS intends to audit the HIRE stipulation. It is likely they will request proof in the form of an affidavit that an employee meets the necessary work standards and was not fired so the employer could gain. The IRS will check so employers don’t receive payroll forgiveness and Work Opportunity Tax Credit (or WOTC) in respect of the same worker. WOTC gives recompense if eligible fresh employees work for 52 weeks. The maximum amount awarded is the lesser of $1000 per employer or 6.2 percent of the 52 week salary-- an employer may not have both. An employer may alter a 941 to the latest 941X if he/she sees there is more credit from WOTC than payroll forgiveness.
Posted by LWM Team on Fri, Aug 20, 2010
Can an IRS Installment Plan or Offer in Compromise Resolve Back Taxes?
A taxpayer’s real fear of not having the money to settle back-taxes is thinking that they cannot do anything about their debt. Most people are completely unaware that there are IRS sanctioned payment options available. This means there is a high chance of them qualifying for an Internal Revenue Service tax settlement program.
As a taxpayer, you should always question which Internal Revenue Service tax settlement is best. Is it the installment plan or the Offer in Compromise? However, choosing the most suitable option of the two is not always clear cut because every taxpayer has a unique set of circumstances as to why there are back taxes. Both programs work well depending on the particular situation in question.
There are many reasons why an individual may a large amount in back taxes. The reasons could be personal hardship, legal judgments, a failed business or unexpected medical costs. If you can’t pay your tax bill, the Internal Revenue Service makes it possible for you to make them an offer. This is called an Offer in Compromise. It is likely you will get a large discount if you apply for this program and so it is suitable for those who owe a large amount. An added advantage is you get to pay the tax bill once and for all. You make your offer at a meeting with the Internal Revenue Service.
However, if you do not have the cash means to pay your back taxes in one payment then you should consider an Installment Agreement (or Internal Revenue Service Payment Plan). You do need to have the money to pay off your debt over a specified period of time. This is exactly the same as paying off any expensive item by small amounts each month. Once you agree to a program you have the responsibility of making your payments on time every month.
Posted by LWM Team on Thu, Aug 19, 2010
There Is No Need To Fear Uncle Sam
Even the most diligent taxpayers find the IRS intimidating. It would be hard to find someone who isn’t distressed when receiving a letter from the IRS with their name on it. Many taxpayers play the ‘if I don’t see it, I won’t have to deal with it’ game. However, this is the completely wrong approach to IRS letters. No matter how negative you may feel, you must open and read the letter.
A letter from the IRS is not going to disappear just because you avoid opening it. The IRS will have it on record and you must respond. If you get a certified letter you must collect it from the post office.
It is possible your IRS letter is really a Final Notice of Intent to Levy. In this situation, an ignored notification will result in the IRS coming to seize your property. However, if you open the letter and then make contact with the IRS you are entitled to halt the collection. An arranged meeting with an IRS appeals agent allows you the opportunity to put forward your case for resolution.
The letter could be an enquiry if you did not file. Silence from your side gives the IRS the right to request an estimate return. The amount owed will be higher. This is the amount the IRS will collect. On the other hand, if you are owed cash and you don’t reply you won’t get the money.
A letter could be informing you of an audit. Whether you owe money or not, a lack of response will ensure you keep getting collection letters from the IRS. Having to halt the collection process and reopen an audit is complex.
If you continue to disregard IRS letters, penalties and interest will continue to increase over time. Your initial amount becomes twice as much every five years.
The best attitude towards a letter from Uncle Sam is to view it as an opportunity to either solve tax problems or bring in money owed to you.
Posted by LWM Team on Wed, Aug 18, 2010
Can Your Tax Story Win Against the IRS’?
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Many taxpayers have experienced their innocent spouse claims, collection appeals and tax returns disappearing. They find out, when they are informed, they were never processed. The only explanation is they were lost. When this happens it is very hard to convince the IRS you really did send it and they have misplaced it. The IRS expects you to show them proof of that filing.
In order to protect yourself against this kind of situation you must know the safest way to file.
Do not mail your tax appeal, return or request. Take it personally to your IRS walk-in meeting point. Make sure you also have a copy in your possession. Request the IRS official to date stamp the copy as proof of receipt when you file the original.
If you have multiple unfiled returns, do not place all in a single envelope. Place each one in its own envelope. By doing this you are raising the chances of each return being processed through the system—4 out of 5 returns being processed is better than none.
It is common for a taxpayer’s filing dates to be disputed by an IRS Appeals or Revenue Officer. When this happens those officers only want to see a copy containing an IRS date stamp as proof. For this reason it is highly advisable for you to hand deliver Collection Due Process applications.
If you must use the post office to mail then request a mailing certificate. Even with a legitimate mailing certificate the IRS is known to query the contents of the envelope in question. The stance of the IRS is a mailing certificate shows you mailed an envelope but does not prove what was in the envelope.
It is sensible to ensure you always have the necessary proof of filing. It takes a little extra time but when it comes down to your story versus the IRS you have no chance of winning.
Posted by LWM Team on Tue, Aug 17, 2010
IRS Penalties Rise if You Can’t Prove Your Claimed Deductions
The Internal Revenue Service has made it publicly clear that you must show an appropriate paper trail as proof when you claim deductions. There are taxpayers who claim home deductions and medical costs on their tax returns but don’t provide any proof. As far as the Internal Revenue Service is concerned, if there is no proof, it doesn’t exist. Aside from not providing evidence of your deductions, filing late will make the situation worse. Not only will you have rejected deductions, but you will also have a late filing penalty.
Certain deductions are valid such as the cost of medical treatment for the taxpayer and dependents. You may only deduct if the medical costs are more than seventy five percent of your amended gross earnings. The medical costs must not be remunerated by insurance. House mortgage or ‘eligible residence interest’ can be deducted but must not be more than $100,000. Interest is paid during the acquisition of a property.
The kind of information the Internal Revenue Service expects as part of the proof for claimed deductions is dates of payments, amounts of payments, invoices, names and addresses. If it is not included with your tax return it is likely the Internal Revenue Service will disallow those deductions. If you want to make sure you get the deductions entitled to you, you must provide proof in writing. This will also prevent unnecessary delays and appeals on your part but it will give you extra interest, fees and perhaps legal fees.
The weak economy is another reason to urge taxpayers to make sure they get as many tax reductions as possible. It is illegal to claim for false deductions. However, as long as you can show a paper trail of evidence for legitimate claims for deductions you have every chance of getting the Internal Revenue Service to cooperate with your request.
Posted by LWM Team on Mon, Aug 16, 2010
Student Loan, Credit Card and Car Debt Exclusion
Student Loan Debt:
When you make the important and necessary decision to further your education, there are unexpected complications that could arise in future; the most critical to students are study loans. However, credit cards and cars are also daily necessities.
There are students who have to contend with the cancellation of their study loan. It is helpful to know in certain instances a study loan that is cancelled won’t always end in taxable earnings. This rule applies to those students who committed to a loan condition that required them to work within a specific profession for a certain length of time. If you carried out this commitment in full then your cancelled study loan will not be taxable earnings. In order to rule out the annulment of study debt there are other circumstances to consider:
It is expected that your study loan would have been made by one of the following:
- State or local government or sub-sectors or the federal government
- A school being guided by a charitable or educational institution or unit of the government in a program to encourage students to take up positions in careers or regions in need of service
- A public-benefit company that is exempt from tax and retains regulation over municipal, state or country hospitals where staff members are regarded as public servants
Credit Card Debt:
In certain instances it is possible to cancel credit card debt. This debt can be disqualified as taxable earnings if the cancellation took place within a title 11 bankruptcy case. The debt may also be disqualified as earnings if became solvent prior to the cancellation.
Car Debt:
If your car is repossessed and you received a 1099-C, the debt amount may be disqualified only if the cancellation took place in a title 11 bankruptcy case. And, like cancellation of credit card debt, the amount owed can be disqualified if you became insolvent prior to the cancellation.
For more articles and tips on Income Tax Help and much more visit our blog homepage.
Posted by LWM Team on Fri, Aug 13, 2010
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5 Ways to Lower Your Offer in Compromise Cost
The key to lowering your offer in compromise cost is knowing how the IRS settlement guidelines work as well as being able to negotiate with the IRS. Here are 5 great ways to lower your offer in compromise cost:
- Let the IRS know you are considering bankruptcy as another option. If you file as bankrupt, the IRS will get no money and they are fully aware of this, so they will likely listen more to your demands if they think they could get nothing from you if they don’t.
- Ensure that the offer in compromise cost does not cover certain items of property that are exempt from being included in what you offer the IRS. Such objects include everyday objects you have around your house, as well as certain objects you may have related to your business.
- You should know how to get to ‘quick’ sale value for your property. You are allowed to sell for 20% below the ‘fair market value’ of the property under the guidelines of the IRS. Such property you should do this for includes houses and cars.
- The IRS has guidelines related to how much you are allowed for living expenses within the offer in compromise. They will allow you a certain monthly amount for certain things, and you should be aware of what your allowances are.
- Make sure you know what income you have that the IRS has no right to take from you. Your offer in compromise cost does not include income such as unemployment benefits, social security benefits for those that are disabled or aged and worker’s compensation.
The more you know about the IRS guidelines for your offer in compromise cost, the more you can lower it. Make sure to be as thorough as possible in the settlement process.
Posted by LWM Team on Thu, Aug 12, 2010
Zsa Zsa Gabor
A lot of money separates regular taxpayers from those with lots of money. Having a lot of fame and money does not mean taxes get paid. In fact, it is generally ordinary citizens who get their taxes paid and not the wealthy. Even though there are those with the advantage of great wealth they are still entitled to the same solutions available to taxpayers who don’t. No matter how much or how little money you have the IRS allows you to have an installment payment plan.
It is highly likely that getting into trouble with the IRS would lead to a tax lien. A famous personality who did get into trouble is the Hungarian born actress, Zsa Zsa Gabor. Her tax trouble amounted to more than $118,000 that resulted in a tax lien. The reason for the lien was because the actress did not pay in full in the years 2001 and 2002.
Ms Gabor has let it be known there is a third party involved. As far as her advisers are concerned Bernie Madhoff and his Ponzi scheme are to blame for Zsa Zsa Gabor losing $7 million and therefore her tax problem is a direct spin-off. Ms Gabor and her spouse are joining their funds and devising an installment plan with the IRS.
As soon as you realize you owe the IRS money take action to avoid a tax lien. Negotiate a payment plan (also known as installment plans or payment options) with the IRS. The IRS is amenable to such a plan. There preference is to get the money quickly but, if you can’t, a payment plan is the best solution. A payment plan means they don’t have to keep track of you. However, be aware. Such a plan does accumulate interest charges and a penalty for payments later than 15 April.
Posted by LWM Team on Wed, Aug 11, 2010
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To The IRS A Tax Evader Is A Tax Evader
It has been noticed that over the years many well known personalities don’t pay or even report their taxes. This is, of course, against Uncle Sam’s law. These personalities are brought to book and one such example of this type of circumstance is Tsen Toma. Towards the end of the nineties, this person operated his own business called Tomo Painting Construction. It was this business that caused Tsen Tomo to be indicted for tax evasion.
Tsen Toma was indicted because when he got checks from customers as payment for services rendered by Tomo Painting Construction, he cashed them. However, that cash was for private use. The checks were cashed at various check cashing establishments. The checks he cashed came to over a million dollars but Tsen Toma did not keep any verification in the form of receipts.
He continued to do this over a period of three years but his business records didn’t show the check payments and nor did he not notify the IRS on his tax return. In the 1998 tax year, Tsen Tomo did report a taxable amount of $29,901. However, the IRS discovered the amount should have been $452,244. This adjustment by the IRS resulted in extra tax of $168,718.
According to media releases Tsen Toma departed from the United States while under investigation by the IRS. This action led him to be placed under arrest. The arrest was carried out at Kennedy Airport on his return from the country of Taiwan. This happened on 24 November. The consequences of Toma’s actions could result in a prison sentence of five years and also a $25,000 or two times the gross gain emanating from the offense of tax evasion. This shows taxpayers that Uncle Sam does not tolerate tax evasion by any person in the United States.
Don't evade your taxes. Tax debt is no laughing matter.