Tax Debt Solutions Blog

Act On Back Taxes

Actions To Take If You Cant Settle a Tax Bill

There are many taxpayers who are unable to pay their taxes.  If you missed the April 15^th deadline there is still hope.  An article by MarketWatch advises you to file a return anyway.  Do this whether you have the cash or not.  The IRS is aware of who doesn’t file.  The penalties will be harsher if you disregard the IRS.

Ask for extra payment time.  You can request up to one hundred twenty days to get your cash sorted out.  Utilize the IRS’ website, “online payment plan” or call 1-800-829-1040.  You will pay interest and a “failure to pay penalty” until the full amount is settled.  No fee is involved.

Ask for an Installment Plan. If you can’t come up with all the cash in one hundred and twenty days, there is a monthly payment plan option if you owe $25,000 or less.  Regular monthly payments mean you won’t suddenly vacate your bank account.

A loan from a family member or friend may avoid trouble with the IRS.  You must have a loan agreement that shows your payment schedule-- amount loaned and interest owed.  This agreement must be signed.  In the event of the lender not getting their money back, they can take off the loss on their tax return.

You can either utilize a current home-equity route of credit or ask for a new one.  Five to six percent is the interest rate for those with a good credit history.  If you pay the other lesser tax interest won’t be deductible.

A pricier option is useyour credit card.  It incurs a flat fee or a ‘convenience’ fee of two to four percent of a tax bill.  If you can’t pay the balance immediately you must pay the interest rate.    

You may be eligible for an Offer in Compromise; however, the IRS may refuse because the taxpayer settles back taxes for less than the outstanding amount.

You can phone the IRS hotline.  Queries have risen by thirty four percent compared to the previous tax year.  Not all queries can be sorted out by using the IRS hotline number.     

Tax Debt Relief | Don’t Live In Fear of a Tax Audit

All taxpayers have the same fear- tax audit.  However, it is far more realistic for all of us to assume we will be audited at some stage in our lives.  No matter how careful we are there is always the chance our name will come up.  The good news is that chance is a small one.  However, rather than always worrying about an audit, it is far more productive to be as organized as you can every tax year.  

If the IRS informs you they wish to ask questions, you can take action so panic is an unnecessary reaction.  It is always helpful to have a tax professional to guide and advise you through an IRS audit experience.  Professionals who have the credentials to argue your case are Enrolled Agents, tax attorneys and CPAs.  These professionals have the background and knowledge to represent you.

It is very important that you work with your tax professional.  This means being completely transparent by handing over all documents and records.  It does help if you already maintain a system of tax related records and files.  Having actual records is the best way to prove a point to the IRS.  If you can’t show them proof then you are regarded as being in the wrong.

Just because you have a tax professional to guide you doesn’t mean you are completely out of the IRS audit loop.  Be sensible and be prepared.  It will help you to know what is expected of you and from you.  It can only help to read through a general guide on audits.

One of your greatest assets during an IRS audit is the appropriate attitude.  Always maintain a professional yet polite manner.  Always be accommodating and helpful by answering all questions as best you can.  However, it is advisable not to give more information than is requested.  Allow your tax professional to take charge and follow his or her lead.    

Tax Relief Tip: S Corporations in Line of GAO

When Edwards ran for President it became known he saved a lot on taxes via his S Corporation.  Most US citizens had no idea this could be achieved.  In fact, they had no idea what an S Corporation was.

S Corporations are usual C Corporations who vote allowing eligible corporations to steer clear of corporation level tax in order to hand taxes like deductions, income, etc. to S Corporation shareholders.  S Corporations may have specific kinds of shareholders but not manifold categories of stock.  This makes S Corporations fairly less adaptable than taxable C Corporations.  Due to an amalgamation of limited liability protection and crossing of tax items preventing a unit level tax, S Corporations grew in popularity.  S Corporations were more easily accessible during the Bush period because modifications made it easy for specific banks to utilize.

From 2003 to 2004, 68% returns of S Corps inaccurately reported at least a single item and were inclined to inaccurately report in favor of the S Corp / shareholder for 80% of the time (stats from GAO report).  It results in inaccurate gross sales, distributions, net income and basis.  Some regard private expenditures of shareholders deductible when estimating net income and not verified.  Shareholders wrongly exercise prohibited losses when there’s no foundation to absorb a shareholder’s loss.  Shareholder compensation is subject to payroll taxes but is underreported as was seen in the Edwards S Corp).  The less S Corp shareholders there are, the higher the chance of errors.

The IRS has begun modifying return preparer compliance as well as the statute.  It is also noted reasonable wage compensation needs clarifying.  It stops the IRS from acting and therefore should be attended to in the regulations.  The GAO report touches on legislative (e.g. making net business earnings employment taxable) and administrative (improving taxpayers understanding and direction for examiners) options.            

Tax Relief Tip: Guard Your Assets

Safeguarding Your Assets from the IRS

When the IRS is attempting to collect from you it is unlawful to transfer assets as a means of keeping them from the IRS.  However, if you plan ahead and use a family member you can lawfully protect your assets.  If you go ahead with transfer you may not be able to retrieve your assets.  No plan of protection is flawless and the IRS has the legal power to recover transferred assets.  Don’t do an unlawful transfer and avoid a fraudulent action on creditors including the IRS.

You can protect your assets by:

Find a corporation that will allow your assets to be transferred to them.  IRS could take corporate assets if it suspects a fake transfer.

Place assets into a partnership that is owned by family only.  A joint tenancy is not sufficient so seek counsel from an expert.

 Place assets in a trust for a family member or spouse.  A living trust means you control the assets.  The IRS won’t accept this kind of arrangement.  They are distrustful of off- shore trusts.

 Use an insurance trust for life insurance policies.  This must be carried out prior to tax difficulties.

 Retirement plans and 401(k) accounts must be completely funded.  Although they can the IRS disapproves of taking plans that are non-ERISA eligible.  You can lower the 401(k) account by borrowing against it in case of IRS seizure.

 Complete transfer of assets to your family members.  This will avoid an IRS tax bill on property you want to bequeath to your children on your death.

 File separate tax returns.  The IRS can take a married couple’s refunds if they file jointly.  If one spouse owes then a separate tax return protects the other.

 Tax Debtors Overseas

 You may have to leave the country with all your assets.  The IRS computer is linked to US Customs and Immigration so you may have to stay abroad for good.  A large number of countries allow the IRS to collect taxes owed by US tax payers.

Tax Relief: You Need To Know This About Installment Agreements

Installment Payment Plan

Debt under $25,000 easily qualifies for a payment plan, but debt over $25,000 must be negotiated.  A payment plan has the downfall of penalties and interest accumulation during payment which could take years to pay off.

IR Code 6502 allows ten years for the IRS to collect tax money.  To get an IA, the IRS will grant you the extension if you sign Form 900.  Delay the process by first speaking to a tax advisor.  The IRS may not remember to give you the form; in those cases, make sure you request a Form 900. If you don’t sign the form, you don’t get an installment agreement.

Negotiating Monthly Payments

If you can’t pay your tax in a maximum of three years or you owe in excess of $25,000 ask for a monthly payment plan and complete Form 433-A or –B.  Each revenue officer will come to a different conclusion on how much you should pay. 

Strategies to get a payment plan:

• Tell them what payments you can afford when handing in Form 433- A or -B.
• Commit to paying less for income essential living costs only, i.e. amount IRS states you can afford after essentials.  You offer to pay lowest amount as it’s hard to revise once you sign installment plan.
• If you have $0 or a minus amount contemplate an Offer in Compromise, collection suspension, or bankruptcy.
• Make an initial payment when you suggest an agreement.  Continue the payments regardless if the IRS permitted your IA.  Paying a set amount, in a timely matter, for three months may convince the officer that the payment plan and amount is right for you.  If you don’t have the means to start immediate payments, a check that is postdated may be accepted.

Tax bills higher than $25,000 must be approved by a manager, not a tax officer.  If an IA is approved it could take months to get it in writing.

If You Can’t Fulfill your Installment Payment

Being unable to fulfill a monthly payment requires an exceptional reason such as disability or loss of employment.  Call 800-829-1040 for help and also contact the relevant tax officer.  If the IRS doesn’t agree, they can start procedures to seize your property; contact the Taxpayer Advocate Service.

An appeal against a revocation can be restarted but the IRS is usually not compliant if the amount is more than $10,000.  You must supply new documentation showing your changed circumstances, affecting income and living costs. During the new process for an IA, the IRS may take wages and accounts.

Tax Relief: Hire A Tax Professional

Tax Professionals

Many ads claim they can assist you to pay an IRS debt for less.  They profess knowledge to reduce your awful tax bill.  Many call this ‘pennies on the dollar’.

They may have helped a few taxpayers pay less, but it’s not easy.  It is probable that even more taxpayers cannot reduce tax bills even with their assistance.

Such companies hand in an OIC (Offer in Compromise) for the client.  In certain situations it’s an alternative where the IRS accedes to an amount lower than the taxpayer’s complete bill.  The IRS only does this when it’s more gainful to obtain money fast instead of spending years and money getting the taxpayer to settle in full.

The ads promise it’s an easy route.  However, realistically they can’t decide on an amount and the IRS approves it.  You must complete an OIC (form 656-A).  In addition, you must attach a completed CI (Collect Information).  CI (form 433-A) gives your financial data.  The CI data must verify inability to make full payment and your proposal must be reasonable.  A $150 fee must go with form 656-A (OIC).  Only proof of little or no finances will allow a reduced fee.  An additional 20 percent is required if you make a complete OIC amount.  For an installment OIC arrangement a first payment is required.

So, the reality is the IRS doesn’t make it easy to reduce your tax bill.  ‘Offer in Compromise mills’ or ‘pennies on the dollar companies’ aren’t your best solution.  Tax experts and the IRS share this view.  You must pay such companies whether they fulfill their promise or not.  There is a belief the IRS is going to penalize such companies for misleading taxpayers.

A qualified tax professional has the expertise to follow IRS regulations and processes on your behalf.  He or she will give you an honest estimation of your tax situation.  This is preferable to wasting time and cash on a company that doesn’t fulfill its promise to reduce your tax bill.                

Tax Relief: Installment Agreement- Getting Declined

When the IRS Declines an Installment Agreement

There are three reasons for the IRS to turn down an Installment Agreement (IA):

• Not all living costs are deemed essential i.e., private schooling fees, high credit card purchases, charitable donations.

• Information on Forms 433-A and -B are inaccurate or deceptive e.g., public records prove you own assets that you didn't reveal or your income is higher than disclosed.

• You failed to complete a previous Installment Agreement causing the IRS to regard you as unreliable.

If an IA is turned down, continue your request with the tax officer/manager, RS Appeals Office, and tax advocate.

Revoking an Installment Agreement

Once an IA is approved, you and the IRS are bound to it. However, there are exceptions to revoking your payment plan:

• You don't file tax returns or settle taxes subsequent to the IA; the IRS monitors your returns and payments.

• Revocation is caused by non-payment or late payment; the IRS gives thirty to sixty days before sending a warning regarding revocation.

• There's a noticeable (positive or negative) change in your finances. If you keep silent they may not see it but, if the IRS notices, you must complete a new Form 433-A or -B.

• If the IRS learns you didn't fully disclose all assets and/or additional income(s) during your IA negotiations.

A Form 523 notifies you of the IRS' intention to revoke your IA. You can appeal it by using Form 9423.

Tax Debt: Expiring Tax Cuts Breathe Life Into Administration

Included in the budget proposal from the Obama Administration for 2011 are suggestions for lengthening certain tax cuts.  These cuts were taken over by the Bush Administration in the years 2001 and 2003.  This is going to be permanent and will affect all the main cuts from that time period.  It is only the 36 percent and 39.6 percent removal of income tax brackets and withdrawal of estate tax that remains.  Note that dividend as well as capital gain charges will not remain at 15 percent but increase up to 20 percent.

 

The latest baseline will not be regarded by the Congressional Budget Office.  This office has refused to go along with the Administration on this issue.  The suggested lengthening or extensions is being looked at as revenue losers by the Joint Committee on Taxation for the function of calculations.  Be aware that the option for baseline does not have any outcome on the monetary contrast between non extension and extension.  All this can show is the difference with either a minus or a plus symbol.

 

This proposal is financially reckless.  Not only is it reckless but it cannot be sustained.  The revenue estimates of the JCT show a cost of $2.465 trillion for the extension from 2010 to 2020.  This score makes it clear that overall in relation to expiration taxes will not be decreased.  All that would happen is increased taxes would be moved from now to the future.    

 

This is a move that is founded on politics.  Due to voters not wanting an increase in tax has led to their baseline of existing policy and not existing law.  This is why the Obama Administration can’t be held completely responsible.  They had no option other than to avoid massive criticism for raising taxes during a very difficult time in the US.  This would have taken place if they had only suggested retention of existing law as well as tax cut sunsets.  Certain of these sunsets are structurally beneficial.

Tax Relief: Making Light of Domestic/Household Help Tax

Have you ever considered what to do regarding tax if you pay domestic helpers cash in the hand?  There is no doubt that you are liable for paying tax on any money whether it is in the form of cash or other means.  Some examples of domestic workers are:  yard workers, babysitters, personal nurses, domestic cleaners, caretakers, housekeepers, health aides and drivers.

 

An employer is responsible for withholding and paying Social Security as well as Medicare taxes if the domestic or household worker earns in excess of $1,500.  A worker earning in excess of $1,000 in a calendar quarter makes the employer liable for federal unemployment tax.  It is highly likely such an employer would also have to pay state payroll taxes.  An employer of a household worker is given the option of withholding federal income tax.

 

The IRS makes it simple for employers to pay their tax regarding the employment of household workers.  An employer does not have to carry out a quarterly filing.  It is possible you may have to fill in a W-2 and also a SSA for an amount in excess of $1,500.  This amount means the employer must obtain an EIN.  The state employment commission then requires your registration so you can pay state unemployment tax.  Extra tax is obtained due to Schedule H.  This schedule forwards unemployment tax, Medicare tax and Social Security.  The employer must keep back fifty percent of the money paid to a household worker.  You keep back $76.50 per $1,000 paid.          

 

In order to make sure you do not employ a person sans legal status, you must fill in the ID number on the schedule H.  This is a means of being certain a household worker is entitled to seek and work in the US and that you carry out your legal obligations as an employer.   

Tax Relief: Information You Need About Tax Relief Help

Tax time seems to come faster and faster each year.  As you prepare for that day, it's a good idea to ask yourself whether or not you might qualify for any kind of tax relief.  This comes in many forms ranging from aid to those in a disaster to keeping your assets separated from your spouse. If you are unsure, it's a great idea to ask a tax preparer for tax relief help and if you qualify for anything.  Here are a few examples:

Innocent Spouse Relief

One of the most common forms of tax relief is called “Innocent Spouse”.  When you request this, you can avoid paying taxes and penalties that your spouse (or ex) may be responsible for.  This could be due to unreported income, faulty deductions, or if you know you aren't responsible for something.  A great example of this is if your spouse is required to pay child support and you are expecting a tax return.  If they are behind, they could take your tax return to pay for your spouse's child support. Getting tax relief help in this area is a must.

Homeowner Relief

In the US, there are a few programs out there that will help cut the taxes of homeowners.  This is both federal and state.  Some countries may even offer relief to renters. You will definitely need tax relief help in this area because if you file yourself, you may miss out on some great savings.

These are just a few common examples of the types of relief you may qualify for. It's difficult to determine what you qualify for so by getting tax relief help from a professional, you might find yourself saving thousands of dollars.  It's definitely worth your time to pursue this each and every year.