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Stay out of IRS Trouble by Submitting your Payroll Taxes

September 7, 2011 By

The current economic recession has had a hard toll, especially on small businesses. Their access to financing and their ability to shoulder tough business seasons are much less than that of bigger businesses. For this reason, many small businesses are being tempted and choosing to skip the remittance of payroll taxes and instead using these funds to work at surviving in the struggling economy. However noble the reasons for defaulting on payroll taxes may be, the IRS is indeed, not happy with this trend. They are now aggressively seeking such businesses and implementing tough consequences for these defaulters. According to tax experts, payroll taxes may lack the urgency of remitting as compared to other business creditors as the IRS does not proactively seek to recover the funds. However, delaying or not submitting the payroll taxes has the potential of bringing your business to a halt. From freezing a business’s account receivables to placing a lien on the wages of staff responsible for remitting the payroll taxes, the IRS can literally cause havoc to your business. It is therefore, advisable to remain in the good books of Uncle Sam.

Report by Treasury Inspector General for Tax Administration on Payroll Taxes

The extent of delayed and non remitted payroll taxes by many businesses was highlighted by a report on payroll tax compliance done by the Treasury Inspector General for Tax Administration (TIGTA) in early 2011. According to the report by this IRS watchdog organization, about $54 billion of payroll taxes are not remitted every year. This is a huge contributor to the tax gap. For this reason, the IRS has taken drastic measures to catch up with defaulters of payroll taxes.

New Approach Taken by the IRS

Following the report by TIGTA, the IRS has randomly picked some 6,600 employers and is auditing them for payroll tax compliance. The IRS states that this is a start and probably, it hopes that the audits will send a warning to any businesses that are still not complying with tax requirements. Some tax experts have seen this move by the IRS as being unfair and harsh, as it sidelines some employers to take the blame of many others who are not complying. Unfortunately, a non-compliant employer is already at fault and lacks any defense and therefore, the employers who are picked in the sample have no recourse for being selected.

Implications of Withheld and Unremitting Payroll Taxes

According to the tax code, the IRS has a right to hold the company responsible for non-remitted taxes. It also has a right to hold responsible the various individuals and entities who have control over the business accounts and who are responsible for remitting the taxes. This includes the accountants, book keepers, treasurers, and owners of the business. The IRS can even hold business creditors responsible for payroll taxes if they prevent the remittance of the taxes by taking control of the business accounts to recover their debts.

When the IRS catches up with a business that has not complied with payroll taxes, they will not only seek the payment of the due taxes, but will also levy the late payment charges that go as high as 25% of the payroll taxes due. The employer is also expected to pay any interests that would have accrued because of the delay in remittance. The amounts due can really sky rocket and can easily drive a business into economic hardship or even bankruptcy. It is therefore, best to pay your payroll taxes within the deadline and to seek compliance as soon as possible if you are already a defaulter to minimalize your IRS problems.

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IRS Payment Options if you are Unable to Pay Taxes Due

September 2, 2011 By

If you find yourself in a situation where you are unable to meet your due taxes before the tax deadline, do not despair. There are available options that you can take advantage of to ensure that you do not agitate Uncle Sam. Here is what to do if you find yourself in such a situation:

File a Tax Return

Ensure that you file a tax return, even if you are unable to pay off the due taxes immediately. There are worse consequences if you do not file the return. Not filing amounts to more tax troubles and may even surmount to criminal implications.

Consider Various Options for Paying your Due Taxes

Once you have filed your tax returns, you need to plan on how you will pay the taxes due. Depending on the amount of taxes that are owed, you may consider the following options for delayed payments:

  • Request for Short Delay – If you will have the funds to pay the taxes within 120 days, then you may call the toll-free IRS number and request for a short delay. The IRS customer service representatives handling such issues are permitted to make an interest and penalty free extension of up to 120 days if you provide a good reason for the delay.
  • Installment Agreement – If the amount you owe is below $25,000.00 and you are not able to pay it all in one lump-sum, you can apply for an installment agreement under the Online Payment Agreement service available on the IRS website. You can also call the toll-free IRS number to set up this installment agreement. The installment agreement is automatic for any taxpayer who owes below $25,000.00 and you can determine the installments to pay as long as you will repay within the required period. This installment agreement also has an extra advantage – you will not be requested to provide financial statements or any further paperwork. However, you will need to pay interest on the taxes due and late payment penalties. The interest rate for tax debt to the IRS is currently at 4% and is subject to change every three months. The late fee is currently 0.25% for Installment Agreements and 0.5% for tax debts outside IRS payment agreements.
  • Consider Borrowing – You can also consider taking a loan to clear your due taxes. However, you will need to compare the amount to pay if you took up a loan against making late payments through installments. Depending on your loan terms, you can check if the loan interest will amount to more than what the IRS will charge in interest and lateness fees. If the loan interest rate is less than that of the IRS’s deal, then it would be advisable to take the loan and pay off your taxes. However, if it is cheaper to take the IRS Installment Agreement, you should not be hesitant as there is no recourse to taking the agreement.
  • Prioritize Between State and Federal Taxes – If you owe both Federal taxes and State taxes, you should also do a comparison of the charges to be levied if you are late on either of the taxes. You can then pay off the taxes that bear more charges in interest and late fees and place an installment agreement with the tax authority with lower charges.
  • Seek Professional Help – If you owe over $25,000.00 or are still unsure about how to handle your tax dilemma, you may consider seeking help from a tax professional on what to do regarding which option to select.

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Extended Deadline for Truck Drivers Postpones IRS Payments

July 22, 2011 By

The IRS filed a Temporary and Proposed Regulations notice in the Federal Register on July 15th 2011 to officially postpone the deadline for the payment and filing of the Highway Use Tax. The Highway Use Tax was due on August 30th, 2011 but the deadline has now been pushed to November 30th, 2011. According to a press release on the IRS website, the reason for this postponement was because this Highway Use Tax is set to lapse on September 30th, 2011. Since Congress may enact new changes and modifications to this tax after its expiration, the IRS has chosen to extend the deadline so that truck owners will not need to file tax returns twice to accommodate any such changes, postponing their IRS payments due. Following this extension of the tax deadline, the IRS will not receive any payments for the Highway Use tax or accept any related tax returns prior to November 1st, 2011. The truck owners affected by this extension are those for trucks that were in used in July and trucks that were first used in August and September.

About the Highway Use Tax

The Highway Use Tax is a tax paid by owners of heavy commercial vehicles including trucks, buses, and truck tractors that have a gross taxable weight of 55,000 pounds and over. These truck owners are required to annually pay a Highway Use Tax customarily on or before August 30th of every tax year. The tax is a levy for the use of interstate highways that are under the Federal government. According to the current tax code, qualifying vehicles pay a maximum of $550.00 annually. The tax payable increases with the weight of the vehicle. There are also lower rates applicable to various categories of vehicles, including those that use the highways in a minimal way, vehicles used for agricultural purposes, vehicles used for logging, vehicles transferred within a year, and those that are purchased after June 30th of a given year. The owners of these qualifying vehicles are required to file a Form 2290, “Heavy Highway Vehicle Use Form” and pay the required taxes on or before the August deadline. In 2010, the IRS collected a total of $886 million from about 650,000 truck and bus owners who filed a Highway Use Tax return.

State Regulations to Enforce the Tax

To ensure that the qualifying truck and bus owners pay the required Highway Use Tax, the Federal law requires the state authorities to confirm proof of payment of this tax before registering the vehicles. The IRS stamps the Schedule 1 on receipt of the Highway Use Tax and this stamped Schedule 1 is what is used as proof of payment when seeking state registration.

Adjustments to these State Regulations

Given that the tax deadline has been extended, the IRS has adjusted the state rules for the registration of qualifying trucks. Trucks requiring registration before the extended deadline of November 2011 can now use the prior year’s stamped Schedule 1 as proof of payment. For the qualifying vehicles purchased after June 30th 2011 – and therefore do not have the prior year stamped Schedule 1, the IRS has allowed states to register such vehicles without any payment proof for the Highway Use Tax. These truck owners are however, required to provide proof that the owner purchased the truck within a period of 150 days.

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Tax Relief and Deadline Extensions for Storm Victims

June 14, 2011 By

Various parts of the United States have been hit by storms and bad weather since the beginning of 2011. These areas include Joplin, Missouri, which had about 132 people die and a further 156 missing as of May 2011 following a massive storm. Other areas hit by storms include parts of Mississippi, Georgia, Kentucky, and Tennessee. There are many who have lost loved ones, property, jobs, and their whole neighborhood. The stories, scenes, and impact of the storms have been a sad tale and well wishers and volunteers continue to help with relief of any kind towards the victims. The IRS has also provided extensive tax relief to many victims of these areas hit and has also extended various tax deadlines to give time to the victims to recover from the impact of the natural catastrophes.

The IRS has pushed the tax deadline for taxpayers who are residents of areas that have been hit by storms that started in April 2011 from the usual deadline of April 18th to August 1st, 2011. The tax deadline applies both filing tax returns and payment of due taxes. The taxes that are affected by the extension of the deadline include 2010 tax returns and 2nd quarter income estimate installment that was due in June 15th. For the people of Jasper County, the tax deadline for the payment of federal employment and excise tax deposits that were due May 22nd had been extended to June 6, 2011. Anyone who receives a penalty charge letter from IRS for lateness of tax payment and is a resident of the areas affected by the storms can call the IRS number indicated in the letter and provide the reason of lateness to the IRS as the impact of the storm. The penalties will be automatically waived.

Besides Jasper County, there are also different deadlines that have been extended to people in different areas affected by the bad weather. Some deadline extensions for areas hit by storms are provided below:

  • For parts of Mississippi affected by the bad weather including Adams, Bolivar, Claiborne, DeSoto, Coahoma, Issaquena, Humphreys, Jefferson, Tunica, Sharkey, Washington, Yazoo, Warren, and Wilkinson, the extension for tax returns has been pushed to July 5th and that of employment and excise taxes that were to be paid by April 27th had been extended to May 18th.
  • For parts of Kentucky hit by storms including Ballard, Crittenden, Boyd, Graves, Daviess, Henderson, Hardin, Jefferson, Hickman, Livingston, Lawrence, Pike, Webster, Union, McCracken, Marshall, and McLea, the tax return deadline is extended to June 30th and the employment and excise taxes due by April 22nd extended to May 9th.
  • For parts of Georgia that have been affected including Bartow, Cherokee, Catoosa, Dade, Coweta, Gordon, Floyd, Greene, Harris, Habersham, Heard, Lumpkin, Lamar, Monroe, Meriwether, and Morgan, the deadline has been extended to June 30th and that the employment and excise taxes due by April 27th extended to May 12th.

Besides the extended deadlines, the victims of the storms can also claim Casualty Loss against their damaged property. The loss needs to be claimed in the tax year that the disaster occurred apart from the specific regions that the Federal state officially declares as disaster regions. For the later group, they can file the claim for up to one year after the damage was done to the property. The damage of the property needs to be caused by a storm, bad weather, or other sudden and unprecedented causes and not by other general and routine factors such as wear and tear.

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IRS Trouble for Nicolas Cage

April 14, 2011 By

No matter how much you think you would love to have Nicolas Cage’s paycheck, you don’t want to have the associated tax bill. Apparently, he didn’t either, and thought he could get away with simply not paying. Nick has gotten himself into serious IRS tax problems which could harm him financially in more ways than a hefty check to the government. He currently owes the IRS $14 million in back taxes, and contrary to popular belief, celebs don’t get the star treatment from the IRS.

This is not Cage’s only tax blunder. A few years ago, his lawyer negotiated a payment of only one-third of his $1.8 million tax bill. At the time, he and his lawyers must have cheered. However, the IRS didn’t stop there with Nicolas Cage. The IRS knows old habits die hard and kept an eye on his paychecks.

And paychecks he got. How did he get such a high tax bill? Well, he makes a lot of money per film and then does not seem to consider it income for tax purposes. For example, in 2007 he got $24 million for two movies, income on which he decided not to pay taxes.

Unfortunately, the actor is not a good candidate for an offer in compromise, a status a person with tax debt can negotiate with the IRS in order to pay back their taxes piece by piece, and often for a lower total. Offers in compromise exists for people who really cannot pay back their tax debt, but who still have to pay something in order for the government to get what is due. However, since Cage is worth around $38 million, well, he can afford it.

Nicolas Cage may make a perfect example for the IRS to show taxpayers that shirking their taxpaying duties is not a good idea. The IRS estimates that it is missing about $345 billion in unpaid taxes. This amount comes from underreported income and over-reported expenses. The IRS knows that people owe them this money and will use its powerful resources to get it.

Knowing how to navigate the Internal Revenue Code and then dealing with the IRS if you do it the wrong way is not something you would have learned in school… unless you’re a tax professional. However, if you do find yourself in a jam, know that you may have options like an offer in compromise, and can settle for an amount that seems fair with the IRS.

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Instead of Planning to File Back Taxes, Request an Extension

April 5, 2011 By

Some people dawdle until tax day comes and goes, simply planning to file back taxes. Instead of doing it that way, join ten million other procrastinators and request an extension! The IRS recognizes that not everyone does everything on time and has streamlined the extension process with Form 4868, Application for Automatic Extension of Time to File.

This application automatically gives you six more months (until Oct. 15) to file. Uncle Sam does not even ask for a reason if you use this form. The IRS used to require that taxpayers who used this form gave a reason for the final two months of an extension. They were granted the four month extension automatically, but then had to have a reasonable justification for needing until Oct. 15 instead of just until Aug. 15. Lucky for taxpayers who like to take their time, the government decided that that process was cumbersome and costly and nixed the nitpicky second form.

However, even with this extension, the normal rules apply for payment. When you file Form 4868, you have to pay at least a close estimation of what you owe. Your tax payment deadline remains the same, so you cannot just file Form 4868 because you want to hold on to your cash for longer. Additionally, underpayment interest and penalties apply. Just when you think it sounds too good to be true, alas, there is always a catch.

If your reason for filing late is because you cannot come up with the cash, you can file on time and use Form 9465, which allows you to enter into an installment payment agreement. With this form, you will automatically be able to pay the bill in installments within three years (if it is less than $10,000).

You can file these requests and pay your due taxes electronically as well as by mail. Be sure to calculate your tax to be as close as possible to the amount owed. You cannot simply give the IRS a symbolic amount to show that you are paying. Remember, the IRS has the power to void your extension if it finds that you are far from correct.

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Law Professor and Former Tax Attorney Fails to File Back Taxes

March 7, 2011 By

Professor Robin Kimberly Magee of Hamline University School of Law was convicted by a jury of failing to file her state tax returns. In her Minnesota trial, she told the press and the courtroom that she “didn’t understand tax law,” even though her biography on Hamline’s website said that she had “concentrated on criminal, entertainment, and tax law” while in private practice. Magee never taught tax law.

In comparison to the charges brought against her, Magee got off fairly easily. Initially, she was charged with felony counts of failing to file returns and pay taxes. Those charges were dropped and she was convicted of the gross misdemeanor of failing to file state tax returns.

Her attorney told the press that she had not filed because she “relied on the state to complete her tax filings.” Apparently, the Minnesota Department of Revenue had been filing her taxes for her from 1991 to 2003 and stopped for an unexplained reason. She continued not to file and was convicted for 2004 through 2007. It is unclear whether she has filed and paid or received a return since.

One perplexing point is that she did not get caught in the complexities of Minnesota state tax law; she simply did not file her taxes at all. So why did she refuse to follow the rules for 17 years? Her Hamline School of Law biography may offer an explanation. After stating that tyranny is a threat to law and order, she wrote, “I, therefore, believe that the highest calling of the lawyer is the call to fight against tryanny [sic] and government-sponsored or tolerated oppression.”

Supporters of Magee claimed that she was “unfairly prosecuted because she has publicly criticized local prosecutors in the past.” However, to show this, Magee would need to prove that the state had not prosecuted others who failed to file tax returns.

The Dean of Hamline School of Law said that Magee’s “actions were contrary to the values of our law school where we expect faculty to lead by example in teaching respect for the rule of law.”

This filing season, avoid having to come up with a defense and make sure to follow the rules and file your current and back taxes!

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Modifications to the IRS Tax 1040 Form and Other Changes for 2011

February 18, 2011 By

Going into the fourth week of February, many taxpayers have their W-2 forms and 1099 forms, if needed, by now. Many taxpayers are aware that there have been many changes involving the Internal Revenue Service (IRS) and tax forms, such as the 1040.

The new changes on the IRS tax 1040 form include new tax credits or deductions. One such change is that this year, the taxes owed by taxpayers are due April 18th due to the Emancipation Day (of the District of Columbia). Because it is a national holiday and falls on April 15th this year, the due date for filing, reporting taxes, and payments on taxes owed is pushed forward three days to Monday April 18th, 2011.

Thanks to the Bush-era Tax Cuts, these phase-out rule tax cuts were eliminated: the mortgage, state property tax deductions, and the personal and dependent exemption deductions. These eliminations that affected many taxpayers in recent years have not only been approved for 2010, but for the following years of 2011 and 2012. For many, this is good news because it means less IRS tax owed with the return of these deductions.

For self employed taxpayers, there is a one-time tax break for the 2010 filing year: the one time deal of deducting your insurance premiums on your tax return. This was not previously allowed for the self-employed and changed only for this filing tax year.

Another change that will shortly become “the norm” for all taxpayers is the e-file. The e-file is still just an option for everyone but not for long. In the next few years, it will be the only “option” for all taxpayers. However, is not bad news; the e-filing is beneficial for many reasons! It is safe, secure, faster, and saves planet earth because less paper means less sacrificing of trees (going green)! Taxpayers who expect refunds will receive them in about two weeks rather than the traditional paper method of 6-8 weeks (unless there are other issues or complications involved, such as injured spouse or IRS audits…).

Take note of these changes for the 2011 tax season. Maybe those extra 3 days will end up saving you some extra bucks with some extra attention!

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Early IRS Tax Filing Tips to Save Time

February 10, 2011 By

With 6.1 billion hours per year spent on filing taxes for the American population, IRS tax filing clearly expends a lot of time. As such a time-consuming affair, taxes can become a burden in our hectic schedules, but there are some tips that can save you time when it comes to filing taxes.

1. Create a “filing” system that best works for you! In regards to documents, such as the W-2 forms and other IRS related tax information that arrive, putting everything you need to file tax returns in one safe place helps alleviate stress by removing the burden of trying to find everything later in scattered places.

2. Review your tax documents as they arrive in the mail or from work and check for discrepancies, such as wrong address, inaccurate Social Security numbers, or incorrect amount of total AGI (Adjusted Gross Income). The safest and easiest way to check wage AGI amounts on the W-2 form is to check your last pay stub in December, showing the full gross amount earned in the year of 2010. If there are any mistakes, it is easy to call the IRS and have the discrepancies corrected before filing.

3. Be sure to be up to date with the tax changes that President Obama and the Congress made during the December 2010 Tax renovations. Check here for the latest on all tax changes:

http://www.irs.gov/individuals/article/0,,id=118506,00.html

4. Decide whether filing your tax returns yourself or hiring a professional tax preparer would be more convenient for you. Although a tax preparer costs more than filing yourself, a tax preparer may guarantee their work and have insurance in the case that you, the taxpayer, may face an IRS audit and/or if the tax return was filed incorrectly. However, if you are confident with your capability to file yourself, you can save money and time because you can file as soon as possible whereas a hiring tax preparer may take longer.

In the end, the decision to file on your own or hiring a tax professional is yours to make. Nevertheless, to save time and a possible headache, be sure to do your research and check over your papers beforehand to avoid complications in the last-minute rush to file. Ironically, taking a bit of extra time to review all the IRS-related documents needed to file and keeping them in a safe and organized place can save you time in the future.

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Tax Relief: Everyone Knows You Can’t have Your Cake and Eat It Too

February 9, 2010 By

So you have been working yourself to death making payments on past due taxes owed and now this year you would have BUNCHES coming back…but not for you. You are an I.R.S. delinquent tax payer. Go ahead, jump off the porch roof, scream a little with the figures of money dancing in your head but, alas, it’s not to be! No $200 or more one-time economic rebate and no earned income credit no matter how bad your little beasties have been this year. The I.R.S. isn’t Santa Claus and you don’t even get a box of rocks!

Keep Up the Payments

You’ve got NADA coming back and you must file, so why hurry? They know when you file that you have a refund that will go for the arrearage of your taxes…so why not just let them wait a bit? Because you are still liable for on-time payments until they actually credit your account with your refund amount…and that can take several weeks, even after other people get their refund! So don’t drag your feet…especially if your refund may wipe out your debt, which incidentally is gaining interest daily!

Are There MORE Wee Little Debts You Owe?

Not only will the feds get what you’ve got coming from refunds or rebates, they will also collect swiftly on any student loans, state or federal taxes and any past due child support you owe. The eyes are upon you and NOTHING gets past the feds!

Don’t even THINK about just not filing because you owe past due payments. Interest and penalties will KILL your credit! Not paying might seem like sweet revenge but you’re the loser when payments aren’t credited quickly, not the IRS!

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