May 19, 2013

Posts Comments

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.

Filed Under: Our Blogs Tagged With: , , , , , , , , , , , , , ,

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.

Filed Under: Our Blogs Tagged With: , , , , , , , , , , ,

More Flexible Offer-in-Compromise Terms with the Fresh Start Initiative

March 27, 2013 By

The Offer in Compromise (OIC) is an agreement between the IRS and a taxpayer that lets him or her settle an IRS tax debt for less than the actual liability owed. Interested and eligible taxpayers are allowed to put in an OIC application, which is only approved and granted by the IRS upon confirmation of the applicant’s inability to pay the full amount either in lump sum or via a payment agreement. OIC applications are approved upon thorough review of the taxpayer’s assets and income to determine the most sensible collection prospects.

In its commitment to make tax debt repayment much easier and flexible, the IRS introduced what it dubbed the “Fresh Start” initiative that expanded the Offer in Compromise program. More flexible terms were introduced in this initiative making it possible for financially strained taxpayers to pay up their tax dues adjustably and efficiently.

The following are some of the notable changes;

·         The calculation of a taxpayer’s prospective income was revised. As opposed to the original OIC that required the IRS to review four years of future income if the tax debts were to be paid in five or less months, only one year is currently reviewed. For offers to be cleared in two years (24 months) the number of years to review prospective income were chopped from five to only two. Please note that the maximum allowable duration for paying off tax debts with an OIC is 24 months.

·         Taxpayers can repay their minimum student loans guaranteed by Uncle Sam for their post-high school education. This provision requires that you provide proof of payment to the IRS.

·         Taxpayers are also allowed to pay state as well as local delinquent taxes. This means that if you owe both state and local delinquent taxes, and cannot fully pay them, you can be allowed to negotiate monthly payments to state tax authorities in some cases.  

·         The standard Allowable Living Expense allowance was also expanded to incorporate average expenses for essential needs for citizens residing in the same geographic locations. The set standards are usually used to evaluate and establish installment agreements and Offers in Compromise applications. With the expanded National Standard miscellaneous allowance, taxpayers can now cover some costs like bank charges and credit card payments.

You can find more information on the “Fresh Start” initiative by visiting the IRS website. Read the IRS Form 656-Offer in Compromise and the IRS Form 656-B-Offer in Compromise Booklet. Alternatively, call the IRS or talk to a tax professional.

Filed Under: Our Blogs Tagged With: , , , , , , , , , , , , ,

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.

Filed Under: Our Blogs Tagged With: , , , , , , , , , , , , ,

Settle for Less with an IRS Offer in Compromise

March 1, 2013 By

The IRS Fresh Start program diluted most strict requirements that used to bar many deserving taxpayers from qualifying and taking advantage of the IRS Offer in Compromise tax relief. However, the whole OIC process still remains a bit complicated for most taxpayers and a good number of applications don’t meet the requirements.

The IRS uses a uniform formula to establish how much is owed; assets (less securing liabilities) plus disposable income after permissible expense times twelve (for immediate payments) or twenty four (for installment payments). An OIC is only approved after serious scrutiny of the taxpayer’s real worth as well as financial hardship.

If you have money in your retirement plan, you will be expected by the IRS to withdraw and include it as part of the offer you make. Assuming that you have $40,000, and your retirement plan has $40,000, the IRS will not agree to an OIC because you can afford to clear your tax debt.

The equity of your assets will be examined and considered by the IRS before finally establishing how much it is willing to accept. In the past, homeowners would just forget about an Offer in Compromise, as they were expected to pull out enough equity to meet their tax burden. This has since changed, and owning a home shouldn’t dissuade you from applying for an OIC, especially if the mortgage is more than the home’s value. 

Your clothing and cheap household objects will not be treated by the IRS as assets. However, art work, collectibles, and other valuables that can be sold will be taken into account. The IRS expects you to sell the valuables and settle the debt, unless it is secured by a loan. But still, the IRS will be interested in quick sale value of the asset and the loan balance.

What about your car? Don’t worry, the IRS understands how much your car means to you, and you can still drive it to work in your efforts to generate more tax revenue, especially if you have a loan on it. But even if there is no lender, the value of the car will be immensely discounted when establishing an acceptable offer. Also not acknowledged, are monthly credit card payments.

It is also important to check out the set standards for housing and utilities, vehicle, and household costs. This information is available on the IRS website. The chances of qualifying for an OIC dwindle if you spend more in housing and utilities that the national standard for housing in your area of residence. You should cut these expenses to be in line with the national standards or even relocate to a cheaper area unless you are compelled to stay in your current residence because of circumstances like disability.

Other factors that the IRS looks into include age, health, earning potential, dependent’s health, and the statute of limitations on the current liability. If your application is rejected, you might want to consider applying as Currently Not Collectible and use this period to plan your tax payment.

Filed Under: Our Blogs Tagged With: , , , , , , , , , , ,

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.

Filed Under: Our Blogs Tagged With: , , , , , , , , , , , ,

Offer in Compromise: New Rules Targeting More Beneficiaries

September 21, 2012 By

Are you a struggling taxpayer overwhelmed by your tax liabilities? The IRS has introduced various alternatives to enable taxpayers clear their tax dues amicably or have them reasonably reduced. One of the latest IRS moves is the Fresh Start program that aims at increasing the number of Offer in Compromise recipients by expanding the qualifications. It has never been easy to clear an IRS tax debt for a lesser value than the amount owed, even with the involvement of the many expert tax professionals.

Statistics indicate that only about 34% of Offers in Compromise applications are approved by the IRS. The Fresh Start Initiative aims to change this data, since more taxpayers are set to benefit from OIC. Despite the changing variables, the set formula used to calculate the amount one is willing to pay used by the IRS is still intact. It is not only about the offer requests being granted, but also the processing time that was slashed by half, from the previous twelve months to just six.

The original OIC program required the applicant to complete the IRS Form 433-A, that was to be sent alongside the offer application, as well as monthly income and expenses. Originally, if you plan to pay the agreed amount in less than five months, the difference between the expenses and income is then, multiplied by 48 or 60, if you plan to pay it over a longer duration. Example, if your income is $1,500 monthly and your “allowable” expenses stand at $1,450 monthly, and you decide to pay off the compromised amount within five months, then the IRS might accept $2,400 as well as the net “quick sale value” of your assets that you have equity in.

To ensure uniform calculation of average expenditures, The IRS established a number of National Standards to ascertain expenses like housing, transportation, and household expenditures. It therefore, pays to live in a cheaper place like if you pay $2,000 per month for your house but the National Standard for that location is $1,000, the IRS will use your rate instead.

The National Standards rates for housing, transportation, and household expenses have since been adjusted by the IRS and can accept higher costs. Furthermore, in cases where a percentage of credit card payments are considered as allowable expenses, a miscellaneous allowance can be added. Furthermore, student loan payments and delinquent state as well as local taxes are now treated as allowable expenses (this wasn’t the case before).

The most interesting change with the new IRS plan, the reduction of the multiplier where 48 and 60 have been replaced with just 12 for immediate payment and 24 for payments made within certain duration. Furthermore, you need not to worry if you own some income-producing assets in a valid on-going business, as their equity is no longer considered when working on the value of total assets to disposable income. This is meant to boost productivity and save the ailing economy.

It may be difficult to completely understand all the intricacies of the Offer in Compromise; filling Form 433 is one thing, but getting the IRS approval is another story. If you need more questions answered, speak with a tax professional to get help.

Filed Under: Our Blogs Tagged With: , , , , , , , , , , , ,

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.

Filed Under: Our Blogs Tagged With: , , , , , , , , , , ,

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.

Filed Under: Our Blogs Tagged With: , , , , , , ,

Have a Fresh Start With the IRS’s more Flexible Offer-in-Compromise

June 26, 2012 By

 

Many taxpayers struggle to pay and clear their tax dues. An Offer in Compromise is one of the best and quickest ways to clear IRS tax debts without getting into trouble. Taxpayers who owe the IRS can now benefit from the “Fresh Start” initiative that alters the Offer in Compromise program’s terms to accommodate more taxpayers.

An Offer in Compromise (OIC) is basically a contract between the IRS and the taxpayer to have the debt settled for a less value than the actual amount owed. The sum payable is usually agreed upon between the IRS and the taxpayer after sufficiently proving the inability of the taxpayer to clear all the debt in a single payment or an alternative payment agreement. To determine the suitability of the OIC applicants as well as an appropriate collection value, the assets and incomes of the taxpayer are closed reviewed and assessed by the IRS.

Different financial reviews used to determine the eligibility of the taxpayer for an OIC have been revised. Some of the revisions include;

  1. Initial calculation of a taxpayer’s anticipated income was done based on four years for offers paid in five months or less. The IRS revised this to just one year, and two years instead of the previous five for those offers whose payment is done within six and 24 months. The maximum payment period of all OICs is 24 months after the date of accepting the offer.
  2.  Taxpayers can now repay their student loans with Federal government guaranteeing the loan’s minimum payments allowed for the post-high school learning of the taxpayer. Presentation of proof of payment is mandatory.
  3. Taxpayers who owe delinquent state, local or federal taxes but lack the capacity to pay for the liabilities fully are allowed to make monthly payments within their respective states to the state’s taxing bodies. However, this is limited to some circumstances.
  4.  Citizens in a similar geographical area have an expanded and common Allowable Living Expense allowance calculation criteria. The uniform allowances include average costs for basic needs. The standards apply during the evaluation of the requests for installment agreement and offer-in-compromise. With the expansion of the National Standard allowances for miscellaneous, more taxpayers have their credit cards payments and bank fees and other charges covered.

You can get additional information about the “Fresh Start” initiative from the IRS website. Also, read the booklet on Offer in Compromise, Form 656-B as well as Form 656. You can also order additional information by calling 1-800-TAX-FORM (800-829-3676).

Filed Under: Our Blogs Tagged With: , , , , , , , ,
« Older Posts