May 22, 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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Paying Estimated Taxes and the Benefits of Compliance

March 6, 2013 By

To enter into any tax payment agreement with the IRS, be it an Offer in Compromise or Installment Agreement plan, you first must be compliant. You have to be paying the current year’s taxes via either tax withholdings from you paycheck or the most accurate estimated tax payments.

If you are an employee, you don’t have to make estimated tax payments. However, so see to it that you completely cover your tax obligation; ensure that your Form W-4 withholdings are approriately structured. The same principe applies if your main income sources are unemployment, pensions, or payments from Social Security.

If you receive any taxable income, organize to have withholdings to be deducted. For Social Security, use the IRS Form -4v and Form W-4p for pension. If you are unemployed, contact your state’s unemployment department for the necessary documents.

If most of your income is from a profitable investment or business free from deductions for withholdings, be ready to make estimated tax payments if:

  • ·         You anticipate to owe the IRS $1,000 or more by April 15 after deducting your refundable credits and withholding.
  • ·         You suppose refundable credits as well withholdings to be lower than the smaller of:

-90% of the tax to be indicated on your tax return in 2012

-100% of the tax indicated on your tax return in 2011, which must cover the twelve months of the year. (If your 2012 AGI was more than $75,000 as single filer or $150,00 for married taxpayers filing jointly, replace 100% with 110%  )

You don’t have to worry about the estimated tax payments if your 2011 tax liability was less than $1,000.

When the Estimated Tax Payments Should be Made

Payment of taxes are due as follows (unless the tax due date is on a public holiday or weekend when it is moved to the following business day.)

  •     First quarter-April 15th
  •     Second quarter-June 15th
  •     Third quarter-September 15th
  •     Fourth quarter-January 15th

Farmers have two payment periods; they can either pay the whole amount on January 15, or March 15 when filing their tax returns.

Estimated Tax Payment Options

The Electronic Federal Tax Payment (EFTPS) is the easiest way to pay estimated taxes. This is a free and convenient payment solution, and since the money is directly paid  from your bank account; you retain the proof that indeed, the owed taxes have been paid in full. Just see to it that the payment is made to the right tax type or tax year. All payments made during the year can be downloaded and printed and attached to the tax return when filing. Paying estimated taxes will safeguard you from the many IRS penalties and interests.

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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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Some Common Tax Day Mistakes and their Remedies

January 7, 2013 By

Taxpayers have over the years, rated Tax Day as one of the most stressful days of the year. Very few would disagree, considering the scrambling and tension they undergo to beat the deadline. It is with these hustles that many taxpayers commit some obvious flaws on their returns. Highlighted below are common mistakes taxpayers are likely to commit on tax day and how they can be fixed:

1. Tax Information Missing: Do you remember where you kept your tax info the moment you received it in January? It is at this point that you will realize that January and April are oceans apart. If you cannot remember, of course after turning the house upside-down, don’t kill yourself. Simply file for an extension to evade the penalties and get time to think.

2. Stumbled on Previous Year’s Returns: This is common: some taxpayers forget or even e-file. If you actually forgot to file or even pay, simply file them before the IRS knocks on your door with annoying notices. It is much safer to include a cover letter-if you cannot figure out what to tell the IRS, ask your tax pro as you may evade some penalties. In future, you sure will learn to open envelopes.

3. You Are Not Prepared: If you are not yet ready to file, don’t rush through the process and induce errors. Just file an extension and take the next six months to “get ready.”

4. Unsigned Return: Unsigned returns are among the most common tax filing flaws the IRS encounters annually. This automatically means that your return is not valid. E-filers are also required to sign them using a PIN. Just make a copy of return, sign, and resend to the IRS.

5. Made a Mistake but Already Sent the Return: It is possible that you may commit a mistake on your return and once it is sent, it is impossible to correct the flaw. So long as the return is valid, file an amended return using the Federal Form 1040X-Amended U.S. Individual Income Tax Return. Don’t make corrections and resend a copy, as it is confusing.

6. You Cannot Pay all the Tax Dues: If you cannot pay the tax dues in full by the Tax Date, go ahead and file the return in time. Failure to file as well as pay only beckons more penalties and interests. Thereafter, consider alternative payment like an Installment Agreement if you qualify. Talk to your tax pro for assistance.

The best way to evade these errors is proper preparation. Ensure that you have your records in order long before the due date and save the last-minute rush, evade errors, and potential penalties and interests.

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Clearing IRS Tax Debt with an Offer in Compromise

September 13, 2012 By

It is not easy to lead a debt-free life. Many individuals are paying off at least one bank loan. Credit card debts are shooting through the roof and your monthly income might be dwindled. However, it is much easier to clear your credit card debts than your tax dues, especially if you there is no indication that in the least, you are trying to do so. As a result, the IRS has introduced various mechanisms to enable struggling taxpayers clear their tax dues with ease, like Installment Agreements, where they pay off the debt in manageable installments over a period of time.

However, some taxpayers cannot manage to clear their full tax debt. In this case, you might want to turn to an Offer in Compromise (OIC) which allows one to clear the debt for less than the full amount owed. This is one of the best ways to clear your tax debt if you are not convinced that you actually owe the tax, cannot pay it in full even if you were to stretch your finances, or you have no doubt that you actually owe the IRS but even if you can pay the amount, there is an equity argument.

To file for an OIC, the IRS will demand for some detailed information to be filled on Federal Form 656-Offer in Compromise. Alongside the application, you are expected to submit a Federal Form 433-A-Collection Information Statement for Wage Earners and Self-Employed Individuals or Form 43-B-Collection Information Statement for Businesses. All these forms are available to download from the IRS website. Also required, are some supporting documents, especially proof of expenses, bank and brokerage statements, as well as a $150 non-refundable fee paid in good faith.

The IRS then reviews the OIC application and can decide to approve or reject it based on a number of factors, like total due amount, time left to collect under the statute of limitations, income encompassing future earnings to accounts receivable, the applicant’s expenses and whether they are reasonable or not, equity amount of owned assets like cars, and amounts in bank accounts. If the amount offered makes it possible for the IRS to recover its debt, then there is a high likelihood that the application will be approved.

To be eligible for an Offer in Compromise, you must be tax compliant with all previous tax returns filed and any liabilities not subject to the OIC, paid. You are also required not to be in any open bankruptcy proceedings. With only about 30% of OIC applications getting IRS approval, you need to seriously think before turning to this method. Consider hiring an expert tax professional with a clear understanding of the IRS OIC rules to boost the chances of your application’s approval.

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How IRS Interests and Penalty Fees Can Double the Amount You Owe

September 10, 2012 By

Did you know that the IRS interests and penalties could double the amount you owe after just five years? Most of the hit comes from the tough multiple penalties that the IRS charges defaulters for not doing what is expected by Uncle Sam. On the other hand, the interests are still a bit fair and reasonable, with the short-term rate being only 3%. Common IRS tax penalties are as a result of failing to pay or file returns in time. Every form of tax you owe the IRS fetches either a late-payment penalty or late-filing penalty.

Late-Payment Penalty; This is charged when you file your returns without paying what you owe the IRS and is usually 0.5% of the owed tax for every month it remains unpaid. This penalty increases each month by a half of a percentage, from 0.5%, 1%, and 1.5% etc for the first, second and third months up to a maximum of 25% which is 24 months. When a final notice of intent to levy is finally issued by the IRS and after ten days the tax remains unpaid, this rate increases to 1%.

Late-Filling Penalty: This is for late filing of returns, and it increases at a much faster rate, starting at 5% of the owed tax for every month the returns are late, increasing at 5% for five months to a maximum of 35% on the fifth month.

The late-filing penalty comes down from 5% to 4.5% when both penalties run concurrently, hitting a maximum of 22.5%, but the late payment penalty still remains at 25%.  When the two penalties are combined, it comes to 47.5%. If you owed the IRS $50,000 and filed the returns five months late, an additional $23,750 is added to your tax burden in penalties alone. If the interest rate is 5%, which is $2,500 per year, in five years, the interest amount alone will amount to $12,500, minus interest on penalties. In total, you could owe the IRS a whopping $36,250 more in five years.

As much as penalties can be abated for rational cause, it is common knowledge that the IRS is a bit stingy when dealing with equity for late payment and filing cases. Many taxpayers seek refuge in bankruptcy to bar the accrual of interests and penalties or reduce the interest and penalty amount to a bare 5% of owed amount. You can also turn to an Offer in Compromise. However, you need not to depend on any of the IRS reliefs, as the best solution is to promptly abide by the IRS requirements and remain compliant at all times.

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Last Minute Rush: How to Avoid Tax-Time Stress

September 7, 2012 By

Tax preparation is a cause of many taxpayers’ sleepless nights, which should never be the case. You can make your tax-filing experience a piece of cake by following these tips as outlined by the IRS:

No Procrastination: You risk overlooking valuable tax saving sources and at the same time, increase the risks of errors on your returns if you rush to meet the tax return filing deadline. As tempting as it might be, fight the urge to delay and avoid procrastination.

Be Informed, Visit the IRS Website: The best place to acquire tax information is the IRS website, which in 2011 alone, received over 322 million visits. Your first stop on the site should be “1040 Central” for the latest news and answers to inquiries about tax filing.

Utilize Free File: You can prepare and E-file your tax returns for free with Free File, available at the IRS website. Taxpayers who made $57,000 or less in the filing year are eligible for the free application offered via private-public partnership with manufacturers. Those who made more than $57,000 and who are okay preparing their own tax returns can utilize the Free File Fillable forms.

Try IRS E-File: E-file is not only the most common tax return filing method, but also the safest and easiest. You can make the April deadline by filing immediately and paying later or combine e-file with direct deposit; your refunds can be issued in as less as 10 days.

Never Panic if You Cannot Pay: There are times when you cannot pay by the due date, don’t panic. Simply file the returns and pay whatever you can afford to evade the tough penalties and interests. You can also talk to the IRS about an Installment Agreement plan via the Online Payment Agreement application.

Pay on Time but Apply for an Extension to File: Those who cannot meet the April deadline automatically have an additional six months to file, up to mid-October. This extension must be postmarked by the April deadline date and doesn’t extend the payment period as well. You must have paid at least 90% of the overall tax due by the April deadline or risk penalties. The extension can be granted through Free File or Form 4868- Application for Automatic Extension of Time to File U.S. Individual Income Tax Return that can be downloaded from the IRS website. This form can also be mailed to you if you order at 800-TAX-FORM (800-829-3676). The mailed forms take at least ten days to be delivered.

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Options for Paying IRS Taxes

March 20, 2012 By

The IRS provides a wide range of options that a taxpayer can use to pay their taxes. The option you use will depend on the amount of taxes that are due, your financial situation, and your preferences. These options are:

  • Withholding – If you are an employee, then the primary way that you pay income tax is through withholdings. Your employer withholds a portion of your pay every paycheck and remits the funds to the IRS under payroll taxes. To determine the amount of taxes to withhold, your employer uses the W-4 form that you filled when getting employed. If too much or too little taxes are being withheld, you can fill out a new Form W-4 with the updated information and submit the same to your employer.
  • Installment Tax – For those who are self employed, you will need to pay installment taxes within the year. Once you have prepared your final taxes, you can then pay the balance taxes by the tax deadline. If your installment taxes are significantly lower than the actual taxes due, you may be penalized for the underpayment.
  • Pay Taxes by Tax Deadline – By April of every year, each qualifying taxpayer is expected to prepare their returns based on their previous year financial numbers. If on preparing the returns you discover that you owe taxes, then you will need to pay these taxes by the April tax deadline. You can pay such due taxes by writing a check to the IRS and attaching it to a paper return. There are also bank transfer options available to facilitate the payment of such taxes.
  • Pay by Credit Card or Other Credit Option – If you do not have available cash and want to clear the balance before the deadline, you may pay using your credit card. The IRS has subcontracted various private institutions to facilitate the collection of taxes through credit cards. You can use any of these companies to pay by credit card. You can also seek other credit facilities such as payday loans or bank loan to raise funds to clear the due taxes.
  • Request for the 120 Day Extension – If you do not have funds by the tax deadline but you will be getting finances to pay the due taxes within 120 days from the deadline, you can call the IRS and request for an extension. The IRS is at liberty to make such an extension on case by case basis and no penalties are charged in such a case. However, the IRS will charge interest for the days delayed.
  • Online Payment Agreement (OPA) – If your tax dues are large and you want to pay them over a period of time, you can request the IRS to set up an installment payment plan. If you owe below $25,000, then you can set up an Online Payment Agreement which is guaranteed and you can set it up on the IRS website or by calling the toll free IRS number. However, installments will need to be paid off within 5 years. Interest and penalties for late payments will also be charged back to the due taxes. This installment plan does not come with any financial disclosures to the IRS and you get to determine the amount to pay monthly as long as the taxes are paid within the 5 year limit.
  • IRS Repayment Plan – If you owe over $25,000, then you will need to apply for an installment repayment plan. To do this, you will need to file Form 433F, “Collection Information Statement Form” and provide your financial details such as your assets, bank statements, and other personal details. The information makes it easy for the IRS to place a lien against your assets. Once you apply for the installment plan, the IRS determines the amount to be paid per month based on your financial situation.
  • Financial Hardship Options – If you are in a financial hardship and are not able to pay the full amount of taxes due, you can seek for relief options. An Offer in Compromise is a waiver of part of the due taxes for a taxpayer who is in a financial hardship. The offer is granted at the discretion of the IRS upon application by the taxpayer. Another option available for someone who is unable to pay the taxes is a Partial Payment Installment Agreement.
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6 Options for Paying Your Federal Taxes

October 21, 2011 By

For employees, taxes are usually withheld by your employer on a monthly basis. You may however, need to pay any balance due after preparing your tax returns. People in self-employment will need to calculate quarterly installment taxes as the year goes by and finally settle any outstanding taxes for a given year by the 15th of April the following year. There are various options available to enable you to make these tax payments to the IRS. Below are six of these options:

1. Payment by Check or Money Order

One of the ways that you can settle your outstanding tax bill is by writing out a check to the IRS and having it posted to the IRS office. You can attach the check to your tax returns. Ensure that the amount on the check is the same as that of the outstanding taxes as indicated in the return to enable easier verification. You can also send a check or money order at any other time within the year to settle outstanding taxes. You will need to indicate your name – or names for those who file jointly – your Social Security number (for joint-filers, indicate both the numbers included in your tax returns), physical address, telephone number, and the tax year that the check is settling taxes for. You can get the address of where to send the check from the IRS website. You can also drop the check at the nearest IRS office in person.

2. Electronic Funds Transfer

Another option available to settle your due taxes is by an electronic funds transfer. The IRS provides a system to facilitate this process, referred to as the Electronic Federal Tax Payment System (EFTPS). You can pay taxes or schedule payments through this system. You can access the system from the website at eftps.gov or by calling the toll free IRS number at 800-555-4477.

3. Installment Payment Options for Taxes below $25,000.00

If you owe taxes of less than $25,000.00, you can set up an installment payment plan through the IRS website. This online service is referred to as the Online Payment Agreement (OPA). The service will enable you to pay off the due taxes in monthly installments as opposed to making a lump-sum payment. You will however, be charged interests and late payment fees. You can also set up the installment payment plan by filing IRS Form 9465, “Installment Agreement Request Form”. The IRS will get back to you in response to the filed form and will give you the details of the installment payment plan.

4. Installment Payment Options for Taxes above $25,000.00

If the taxes owed are more than $25,000.00, you will need to file Form 433F, “Collection Information Statement” to be considered for a installment payment plan. The form requires you to provide details of your financial assets and other finance related information. You will also need to attach various support documentations for your finances. The IRS then reviews your specific financial situation and determines the amount of installments to be paid on a monthly basis.

5. Credit Card Payments

Another option available to settle your tax bill is by using your credit card. The IRS has outsourced the credit card payment service to three private companies and you can choose to pay from these various vendors. These three companies are Link2Gov, RBS WorldPay Inc., and Official Payments Corporation. You can make payments either by calling their telephone number or through their website. Note that these companies charge you for this service.

6. Short-Term Delayed Payment

If you do not have money by the time the taxes are due, you can call the IRS’s toll free number and request for some extra time to raise the funds. Usually, the IRS agents may give you up to 120 days to settle the taxes with no interest or penalties. You will however, need a good, justifiable reason or explanation to qualify for this grace-period extension.

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