May 20, 2013

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Various Ways to Pay Your Tax Debt with the IRS

May 2, 2013 By

Every eligible taxpayer is expected to pay taxes and file tax returns annually. You might be facing a mountain of financial challenges, which is understandable. However, Uncle Sam expects you to abide by the law and pay; but if you cannot clear your tax debt by the due date, there are other legally viable options you can resort to.

Typically, the IRS is supposed to collect taxes due within 10 years from the date of filing tax returns. Upon negotiation, the IRS may structure the payment amounts in a way you can pay off within the collection period. If you choose to ignore the tax obligations, the IRS has all the rights to move in on your assets and recover the tax amount owed. IRS officials may slap a lien on your house, freeze the bank accounts, seize tax refunds which you were otherwise eligible to, or even garnish your wages.

All you have to do is to plan your tax payments well and you will never have to worry about any aggressive IRS collections methods. 

The determination of the tax amount outstanding is the first thing you should do, since payment options vary based on the amount. Also, if you want to save yourself from a lien, ensure that the tax due does not exceed $10,000. If you have an untainted tax-compliance history, the IRS may relax the amount to be paid immediately and accept any proposed tax payment plan.

Offer-In-Compromise: This is an agreement between IRS and the tax payer to settle the tax debt at a lower amount than what is actually owed. This will however, depend on the debt amount and your income. The IRS scrutinizes your ability to pay, income, expenses, assets equity, amongst other factors before approving any OIC applications. You will be required to fill the IRS Form 433-A and Form 656 plus a $150 non refundable fee.

Credit card payment: The IRS penalties and interests are pretty high compared to some credit card rates. To evade paying nominal interests on your tax debt, the credit card payment might be ideal. Find out the rates from your credit card company and weigh the two options.

Grab A Fresh Start: The IRS is always coming up with a variety of options to enable as many taxpayers as possible to pay their taxes. The Fresh Start Program is available for taxpayers who owe less than $50,000 and your fail-to-file penalty can be waived up to six months by filing the IRS Form 1127-A

Installment Agreement Online: If you owe less than $25,000 and have up-to-date tax returns filed, then online payment agreement is a great solution. You can decide how much to pay per installment if you owe less than $25,000. However, if it exceeds $25,000, you will have to apply by filling a form 433-F to work out an Installment Agreement payment arrangement.

Installment Agreement For Large Balance Due: In case the tax due exceeds $50,000, you will have to apply for an Installment Agreement by filling the form 9465-FS and form 433-F plus the collection statement and sending them to the IRS via mail. Your financial information will be reviewed before the IRS approves your application. Upon approval, you may have to pay a fee that is totalled up based on the income, and the type of plan you may qualify.

Important Tips

That tax code is complicated, and most of the provisions contained may be confusing. It is for this reason that you might want to consider help from a professional, CPA, tax attorney, or enrolled agent who can negotiate with the IRS on your behalf. You must also keep up to date with changes in your life that might affect your taxes and proper estimation of your taxes; use the IRS Form 1040-ES for this.

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Important Tax Tips for Non Filers and How to File

April 22, 2013 By

One of the main benefits of filing tax returns is the peace of mind filers enjoy. On the other hand, non filers have to watch out for Uncle Sam, lest they get exposed.  In most cases, non filers find it “convenient” not to file for fear of finally drawing the IRS attention and facing the consequences for their past indiscretions. It is even graver if the taxpayer has not filed for many years, maybe hoping that the IRS will somehow forget about their existence. This is a severe misunderstanding, because the IRS’s zealousness when it undertakes collection duties; the IRS will never simply “forget” about your tax past. In fact, some have even openly expressed reservations towards getting married to non filers with huge tax bills.

Sometimes, the IRS may not really bother with non filers, especially if the unfiled years would have resulted in tax refunds for the taxpayer. In this case, not filing your taxes will result in a missed opportunity for one to reclaim some funds.

With proper records, all back tax returns can be filed with the help of a tax professional. However, tax refunds expire after three years upon the expiry of the statute of limitations, the amount doesn’t matter. That is however, for the few scattered cases, but for the majority, you risk owing Uncle Sam a lot if you don’t file. If you are tired of looking over your shoulders and wondering if the individual next to you is an IRS agent who is trying to bust you, you can turn things around.

Call the IRS: Just like the story of the prodigal son, the IRS will receive you with jubilation the moment you “come back home.” It is misleading to assume that you will be handcuffed and thrown behind prison bars. You can find guidance on how to file all back taxes, and with the help of a signed IRS Form 2848-Power of Attorney, your tax pro can represent you through this process. A tax pro will find any Substitute for Returns (SFRs) available and negotiate with the officials on suspending collection as you prepare to file.

Records are Never Lost Really: If you don’t have your tax records, you shouldn’t panic. The IRS has copies of all relevant tax documents and you can request transcripts of any third party documents like W2, 1098, K-1 and 1099 that might have been sent over the years. Your banks can also help fill in other blanks. The self employed non filers who are supposed to file Schedule C that are without tax records are advised to apply industry standards. You may have to provide standard incomes from the business, like total annual sales.

Don’t be Scared of High Tax Bills: The IRS generates Substitute for Returns (SFR) whenever taxpayers fail to files. The figures on SFRs are usually abnormally high because they are based on estimates, but the figures will normally come down on the real tax return. In fact, you might still be eligible to some refunds. Please note that you can still file even if you cannot pay.

It takes about eight weeks for the IRS to prepare and send a comprehensive bill detailing penalties, interests, and taxes owed. If the tax bill is too huge, you can choose to be deemed currently not collectible, negotiate for an Installment Agreement payment arrangement, or an Offer in Compromise. You cannot solve your tax woes by hiding, they only will haunt you and get worse over time.

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Six Great Ways to Pay Your Late Taxes

February 27, 2013 By

Taxpayers who owe taxes can use a number of options to clear their tax dues. If you owe Uncle Sam, here are some important tax payment tips for you:

1. Pay Your Tax Bills: Whenever you receive an IRS tax bill indicating that you owe late taxes, it is expected of you to clear all the owed taxes, plus the resulting interests and penalties. If you are financially strained and can’t pay the due amount, consider getting a loan to clear this bill. This is mainly because a loan from a financial institution fetches much lower interests compared to IRS penalties and interests.

2. EFT: The IRS supports various tax payment methods, including the electronic funds transfer, money orders, checks, cash and even cashier’s checks. Electronic funds transfer is however, the fastest and most efficient. Use the Electronic Federal Tax Payment System to pay your late taxes.

3. Credit Cards: You can use your credit card to clear your tax bill. Unlike the IRS interests and penalties, credit cards rates are much lower. Some of the companies that support this mode of payment include Link2Gov Corporation, WorldPay US Inc, Official Payments Corporation, amongst others.

4. Apply for an Extension: You can request the IRS to extend the tax payment period via the Online Payment Agreement on the IRS website. Use this time to plan your tax payment.

5. Installment Agreement Plan: If you cannot pay the whole tax bill owed at ago, you may want to enter into an Installment Agreement plan with the IRS. With such plans, you agree to make a monthly payment. However, you can only qualify by filing all necessary tax returns and be up to date with the estimated tax payments. Use the IRS Form 9465, Installment Agreement Request or an online payment agreement if you owe $50,000 or less cumulatively in taxes, interests and penalties. Use Form 433F if you owe more than $50,000. Note that you may have to pay a one-time user fee.

6. Offer in Compromise: This allows taxpayers to clear their tax debts for less than the whole amount owed. The IRS scrutinizes every application carefully before approving, especially the finances of the applicants. It was however, expanded to benefit more taxpayers with the fresh start program, but still, you must prove your financial hardship beyond reasonable doubt for your application to get the IRS approval.

The bottom line is; make certain that you clear your tax debt in time as any delay may result in the accumulation of IRS penalties and interests.

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Filing IRS Back Tax Returns

January 23, 2013 By

The rush to file back year taxes is common, especially during the annual tax filing season in April. This is the time many remember they failed to file returns for a number of years. The main reason you have to file your back years’ returns is obvious; avoiding the steep IRS penalties and interests. To catch up on your returns, there are a few things that you need to bear in mind.

If you are seeking the help of a tax expert, it is important that you share all the income and expenses information for the year in question. In most cases, the W-2, 1099’s, and other related tax forms are required, as they guide the preparer through the filing process. If by any chance you don’t have the relevant documentations, you can always request for your wage and income transcripts from the IRS.

The tax preparer can also request the same on your behalf with a signed Power of the Attorney, Form 2848. The taxpayer must however, determine the Schedule A deduction amount plus the business’s income and expenditures.

The IRS can provide the 1099s and 1098s, but the tax preparer must see the last filed return, especially if they are filing back taxes for multiple years. It is always prudent to start with the oldest return, as there is some info that may be carried forward to the following year. The returns should be mailed, since most of them were filed on paper.

If you were eligible for tax refunds, it is unfortunate, because you may not be able to claim them it if you waited too long to file. Normally, you are required to file within three years from the tax return due date. Even though you can still file the returns after the three years, you will not be eligible for the refunds. On the other hand, if you have any balance due, you should prepare yourself to pay the amount owed, plus interests as well as IRS penalties.

Many taxpayers assume they don’t have to file, so long as they haven’t received any formal correspondence from the IRS. This is very misleading, as the IRS believes it is an obligation for every taxpayer to file returns annually without having to send a reminder. Furthermore, if you want to enter an Installment Agreement or an Offer in Compromise, you have to get all the necessary returns filed to qualify. The best time to catch up on your back taxes is during summer, when tax agencies are not as busy. If you have unfiled taxes, talk to a tax professional for assistance and file all your back tax returns before the IRS comes knocking.

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Celebrity Tax Mistakes and Lessons to Taxpayers

November 30, 2012 By

Celebrities act as role models to millions of loyal fans and enthusiasts. As much as many wish to emulate them and follow in their footsteps, it seems that a lot of them score poorly when it comes to taxes. They have crossed paths with the IRS for various reasons ranging from negligence, failing to file returns, defaulting payments, amongst others. The general public can however, learn a lot from these flaws and steer clear of any trouble with the IRS. Explained below are some common celebrity tax faults and what we can learn from them:

Failure to Pay Tax Dues: Just because you are a celebrity doesn’t mean that the IRS will give you equally celebrity treatment when you default. When Wesley Snipes accumulated a whopping $17 million in tax dues, the IRS didn’t hesitate in pressing charges against him that eventually landed the actor behind bars. Others who have had to learn simple tax lessons the hard way include Nicolas Cage, Christina Ricci, Pamela Anderson, and Lindsay Lohan. Everyone must pay taxes on all income earned (unless otherwise stipulated in the tax law) or face an IRS hefty fine or a jail term.

Failing to File Tax Returns: Filing returns can be hectic, but it is a responsibility that cannot be pushed evaded. Wesley Snipes was accused of failing to file his tax returns by the due date thrice. Many taxpayers assume that they shouldn’t bother filing if they cannot pay taxes on their income. It doesn’t matter whether you can pay your tax debt by the time of filing. Go ahead and file, and find out a way to clear the tax due with the IRS to evade penalties, interest, and even a day in a tax court.

Failing to Define Income According to the IRS: Celebrities are regularly awarded with jewelry, gift packages, and exotic vacations, amongst other things during various awards ceremonies, like the Academy Awards. However, some don’t realize that these gifts and perks are taxable and should be reported on Form 1099 or the IRS will be all over you if it doesn’t get a fair share of the awards.

Overreliance on Professionals: Celebrities have professional staff that run their businesses and manage diaries. Nicolas Cage blamed his business manager for mishandling his funds causing huge losses that devastated his finances. A similar case was reported by Martin Scorsese and Al Pacino, who pointed at Kenneth Starr, who was eventually convicted. It must however, be noted that the taxpayer bears tax responsibility and has to ensure that the returns are correct at all times.

When it comes to taxes, the IRS doesn’t bestow anyone red-carpet treatment, even if you are an Academy Award winner. Tax compliance is an obligation that must be respected at all times by all people.

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If You Owe the IRS Taxes, You Could Lose Your Passport

November 28, 2012 By

Do you have travel plans this holiday season? Are you planning on going overseas or across borders? Other than the bothersome airport taxes for travelling to international destinations, it might appear there is no real connection between traveling and your taxes. This however, may not be the case as a huge tax debt could permanently keep you home. According to the recently proposed tax law, tax defaulters will be barred from travelling out of the country if the legislation passes. This is one of the many laws that Congress has introduced to an already confusing tax system.
The law was proposed by Sen. Harry Reid (D-Nev) who argues that taxpayers who owe the IRS over $50,000 shouldn’t be issued with passports. This is an obvious attempt to bring in more funds to the Federal government reserves. This law has been related to the Senate Bill 1813 that was introduced by Senator Barbara Boxer (D-CA) and approved by the senate to reauthorize Federal-aid highway and highway safety construction programs.

According to the proposed law, the State Department should be allowed to deny, revoke, or limit passports to taxpayers who owe it more than $50,000. This means that Americans who owe back taxes will be blocked from leaving the country lest they pay Uncle Sam off for good. There are however, a few exceptions to this law; taxpayers already servicing their tax debts, or those who have to travel to attend to emergencies or for humanitarian reasons will still be allowed to travel. However, this doesn’t mean that only taxpayers facing criminal tax cases in the USA or fleeing the tax debt are targeted; any defaulter can be a victim.

Upon the approval of the proposed law, your passport could be revoked simply because a notice of lien has been filed by the IRS because you owe Uncle Sam $60,000. Considering the routine filing of IRS tax liens, which is mostly done to compel the creditors to pay, many taxpayers are going to be affected. This will be quite extreme, as some of the travelling taxpayers may actually be trying to earn some income to clear their tax dues. Barring them from travelling might mean stopping them from earning an income, further complicating their tax due repayment plans.

With very few exceptions in the proposed law, some experts have warned that a small amount of owed child support could still contribute to the passport action. Some believe that the whole proposal is unconstitutional and must be scrapped. The best thing taxpayers can do for now is to wait and see the course this whole story takes. In the meantime, pay your taxes if you still want your passport.

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The Errors and Terrors of Procrastinating on Taxes

August 29, 2012 By

Every year, individuals have nine months (if a request for an extension is filed) while partnerships and corporations usually have a little over eight months to gather their previous year’s tax data and start filing their tax returns. This period can be assumed to be sufficient to enable taxpayers have their taxes in order. Unfortunately, the reality is far from the truth that procrastination is widespread, which has some serious tax consequences and affects many taxpayers.

Assuming that you have all the necessary documents except one by the April deadline, you are free to file for an extension if the missing document can be obtained after the April deadline. Many tax representatives will remind you about the missing document, which can be obtained in some way or another. Eventually, even with all these available options, one may end up missing the extended October tax filing deadline, which means only one thing: trouble with the IRS.

To ensure that taxpayers file their taxes in time, the IRS charges a 25% late-filing penalty, a 5% late-payment penalty, plus about 5% interest. If you have $1,000 due, you end up paying an extra $300, a figure that would have been as low as a $25 underpayment penalty had you filed in April, even if you overestimated your deductions and expenses, and underpaid your estimated tax payment in April.

It is natural that many people tend to take some tasks more seriously at the eleventh hour. Filing of taxes is a complex process that requires sufficient time to verify and ensure that all the information has been filled in the tax return forms appropriately. Last minute filing will mean that you won’t have sufficient time to review them and find out if there are any tax credits you are entitled to but didn’t claim. Eventually, this will shortchange you a lot of money that could have gone to other important things in your life.

The IRS sends out notices to tax defaulters and if they don’t hear from a taxpayer; they communicate with the state and prepare substitute tax returns for the taxpayer, also known as an SFR (Substitute for Return). Your balance due is computed as a single filer without any dependents, free from any deductions and exclusions, according to the information contained on your W-2s and 1099s. As a result, you end up with the highest tax possible and if you don’t come forward, your bank account can be seized or your wages garnished.

It doesn’t matter whether you never owe and always expect tax refunds. Your refunds will be gone for good if you fail to file a claim for over three years. Escape the errors and terrors of late filing of taxes by eliminating procrastination; keep an eye on the calendar and always file on time.

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How to Manage the IRS in Case of an Investigation

October 12, 2011 By

Over 1 million taxpayers are audited every year. Most of those audited are audited through a letter. The IRS sends a letter to the taxpayer, requesting further information concerning item(s) in the tax return. If the taxpayer being audited responds to such a letter with the required information, then it will typically end the IRS investigation. However, at times, the investigation may not be conclusive or one could have given wrong information on his or her tax return. In such a case, the IRS may seek further investigation that may result in back taxes, penalties, and interest. If you ever receive any of these audit letters from the IRS, here is some information that can help you out:

Respond to the IRS in a Timely Manner

IRS auditors are human and thus, subjective to some extent. This means that if you are pleasant and respond to them in a timely manner, you may have a much better time and receive some leniency and favors in return. On the other hand, if you ignore the audit letters or are rude to an IRS auditor as they seek for information concerning your taxes, then you may end up with a more intense audit and harsher consequences. The IRS auditors usually have quite some leeway when settling tax cases and you can gain some mileage by simply being polite and cooperative.

Provide the Information Needed

When contacted by the IRS to provide them with information, mail the required documentation as soon as possible. If you do not respond fast, you will get into further problems with the IRS. The IRS will normally start out with a polite letter but if you fail to respond, the subsequent letters often become more demanding and harsh. Therefore, respond to the IRS as soon as you receive such a letter. If the information that the IRS is requesting for is not readily available, then you can always ask for an extension of a week or two to obtain and/or prepare the required documentations.

Negotiate Your Position       

If you have the required documentation requested from the IRS, sending it should settle any audit matters. However, you may find yourself in a situation where you are “on the wrong.” In such a case, you will need to know your options. One advisable thing to do in such an instance is to seek professional help. You will need to negotiate your position with the IRS to get the most favorable terms. Therefore, you can get help and ask as many questions to see how you can best position yourself in the situation. You can find out the options that you have or see if you can be entitled to various waivers and reliefs. The IRS provides reliefs such as an Offer in Compromise or Installation Agreement that can help you better manage back taxes.

Stick to the Agreement

Once you agree with the IRS on a plan to settle the tax issue, ensure that you stick to the plan. If you have agreed on an Installation Payment Plan for example, ensure that you pay the required installments in a timely manner. This not only helps you avoid further confrontations with the IRS, but can also work to your advantage in case you get into another tax problem in the future.

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IRS Help Regarding Your Foreign Account

August 4, 2011 By

The IRS has over the recent past, cracked down on taxpayers who have been defaulting on payment of taxes against foreign incomes. Unremitting taxes from foreign incomes is one of the leading contributors to the tax gap and the IRS has earmarked this tax source as an area of focus, especially in the wake of the tremendous government deficit. Taxpayers with foreign accounts and those that make foreign incomes can no longer take payment of taxes for granted. The IRS has made major headway through partnerships with other governments, seeking disclosure from foreign banks to get to taxpayers who have defaulted in paying their taxes on foreign incomes. They have also come up with various initiatives and procedures that are targeted at getting more taxpayers to pay taxes against these incomes. Some of these recent moves by the IRS on tracking down foreign income earners are:

Form 1040 Disclosure

In the 2010 tax return form 1040 at Section B, the IRS included a question that required the taxpayer to reveal whether he or she had a foreign account. Many taxpayers ignored this yes/no question while others checked the “No” option, though they did indeed had foreign accounts. However, answering this question falsely or ignoring it means that you willfully withheld or misrepresented the truth and therefore, exposes you to further liabilities. Even taxpayers that checked the “Yes” option are still required to pay taxes on foreign incomes earned and file the treasury disclosure form (if their accounts meet the minimum disclosure threshold).

IRS 2011 Offshore Voluntary Disclosure Initiative (OVDI)

In 2011, the IRS also provided an amnesty program to foreign account holders who had not complied to the legal disclosure requirement to do so with reduced consequences and no criminal recourse. The amnesty program provided an opportunity for the taxpayer to come clean by paying due taxes and interests accrued and paying a final penalty of a percentage of the highest account balance since 2001. This amnesty lapses on August 31st, 2011, except for those that applied and qualified for an extension to November 30th, 2011. The IRS says that this is a last amnesty opportunity for any defaulter to come clean without facing the full legal consequences.

Opting Out

The IRS has also provided an opportunity for taxpayers who have already signed into the 2011 OVDI to opt out of the initiative and face the regular consequences of their non disclosure. This option has been provided to enable taxpayers who may be at a disadvantage through the initiate to opt in for paying penalties under the regular requirements. However, since those opting out will have already joined the initiative and provided the IRS with information about their foreign accounts, they will be obviously more vulnerable to an IRS audit and back-tax bills.

Treasury Disclosure Form TD F 90-22.1 Update

Taxpayers who have foreign accounts (including bank accounts, stockbroker accounts, annuity accounts, and other fund and investment accounts) are expected to file Form TD F 90-22.1 “Report of Foreign Bank and Financial Accounts” (FBAR) form by June 30th of every year for the previous financial year. In 2011, this form was adjusted to allow for more disclosure as the IRS seeks more information to seal any possible tax loopholes.

Quiet Disclosure

Some taxpayers are opting to start filing FBAR forms to fully disclose and pay past foreign income taxes without alerting the IRS of their former non-disclosure and default; they are also not taking up the OVDI amnesty program. They are doing so in the hope that the IRS will not catch up with them within the 3 year statutes of limitations and therefore, forgo any penalty payments or other legal recourse. This is being referred to as a “quiet disclosure.” The IRS has warned against quiet disclosures and has stated that any taxpayer who opts for quiet disclosure is in essence, willfully violating the law.

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Is It Time to Hire a Tax Lawyer?

April 19, 2011 By

If you are in trouble with the IRS, there are several important factors to consider before choosing representation. Consider the level of involvement of the IRS in your issue thus far.

If the IRS is going to audit you because they believe your taxes were fraudulently filed, a tax lawyer will be able to advise you on what to do to avoid severe penalties of up to 75% of taxes you owe. If you owe taxes and paying them will create severe hardship for you, you may be able to enter into an Offer in Compromise agreement with the IRS which will allow you to pay less than your full debt. Although you can get an Offer in Compromise without representation, a tax attorney will be able to increase your offer’s chance for acceptance. In the event that your offer is not accepted, your attorney can advise you on your other options.

You may have a lien placed on your assets or your wages may be garnished because of failure to pay your taxes. With a lien or wage garnishment, the IRS attempts to gain back the value of the taxes you have yet to pay. A tax attorney can help you by getting the lien or wage garnishment removed. If the IRS has already audited your tax returns and determined they were fraudulently filed, a tax attorney can help you get the resulting penalties removed.

To find the best tax lawyer for your needs, do your research. Many attorneys offer free consultations, which is a great opportunity to assess whether you are compatible with that tax lawyer. It may also help to ask others who have had tax problems, and it is essential to make sure they have experience, the proper education, and are a member of the state bar.

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