May 19, 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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What to Do When You Receive the Dreaded IRS Audit Notice

March 29, 2013 By

Receiving an IRS Audit Notice can make someone break out into a cold sweat, because no one looks forward to an IRS audit. However, the outcome of the impending audit will be determined by how you handle the notice. People often underestimate it and due to their lack of knowledge, end up in arms with the IRS, which can be avoided by taking the correct steps. Refer to the following when you receive the dreaded notice:

Read and Understand the Notice: You must read the IRS Audit Notice patiently and carefully. These notices carry lots of information like the year under audit, forms that will be examined, important dates, and all the contact related details. This will help you prepare for the impending audit.

Determine the Audit Location And Nature: Audits can either be correspondences requiring you to mail requested information to the audit office itself or a tax official might choose to visit your premises. In some cases, you may have to go to the audit office. In case the audits are correspondence-based, be careful enough lest you send original documents by mail; ensure that only photocopied or scanned documents are mailed. The audit officers may ask for a large number of documents and they take no responsibility if any of them are lost. You have to be very specific about what you send.

You also have the right to change the location of the audit if your tax professional lives in a different location. In fact, it is highly recommended that the audit is conducted as far away from your premises as possible.

Assess Yourself Well: Before heading out to the audit, properly assess yourself and determine whether you can handle it or not. If you are not confident enough, you will definitely need professional tax representation when dealing with the IRS. This should be determined beforehand. If you are using a tax pro, ensure that you understand him or her to avoid any form of confusion at the time of audit. The IRS may ask certain questions regarding your income as well as somewhat personal life. Your number one shield during a tax audit is your tax records and related documents, see to it that they are safely guarded because the IRS will definitely ask for proof.

The above steps are recommended will help you handle IRS tax Audit Notice effectively. However, if you are still unsure or confused about everything, understanding your rights can help you boost your confidence. Ignoring Audit notices or avoiding the IRS can be dangerous. Sometimes, proving to the IRS that you are committed to complying with their requirements may actually expedite the audit process.

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Responsible or Willful in Tax Withholding

March 26, 2013 By

Your business is struggling to remain profitable and to get it back to its feet you are tempted to divert worker’s withholdings to pay off business expenses. Avoid this at all costs unless you are ready for a tussle with the IRS. If for one reason or another the company eventually fails, you will end up with a payroll tax bill, money that the IRS will unquestionably want to collect. Uncle Sam will hold the “responsible person,” usually the signatory authority of the business, accountable.

In establishing the responsible person to account for an unpaid tax bill, the IRS considers several factors. If you end up in court, the following factors will be considered

·         The official duties and responsibilities of the individual

·         Does the individual sign checks?

·         What is the person’s identity?

·         Who hired or fired the employees?

·         Who manages the company’s financial affairs?

In establishing whether you are willful in such cases, the IRS considers two most important factors:

·         If you paid other creditors even in full knowledge of the unpaid IRS withholding taxes during this period.

·         You irresponsibly paid no attention to a known risk of unpaid taxes.

You will still be held liable if you recklessly took no notice of the facts and potential risks that payroll taxes hadn’t been paid, even if you were actually unaware of the unpaid taxes. You risk being considered willful if you failed to look into the matter even after receiving a notification that withholding taxes were not being paid as expected. This means that claiming negligence is a weak justification.

There was a case when the IRS went after two company officers over hundreds of thousands of dollars of unpaid payroll taxes. Though initially granted summary judgment, the decision was later reversed by the Sixth Circuit because the officers were evidently “responsible persons” but it could not be clearly established whether they were willful.

They were considered reckless by the district court, arguing that they knew or were supposed to know of impending risks due to unpaid taxes. It was a case that turned to some sort of blame game and finger-pointing, some form of she-said, he-said contest. To evade taking responsibility, the officers in question claimed that they had been advised by their accountants that the taxes were being remitted as expected, and even went as far as hiring employees to manage the payroll taxes.

Do you think the officers knew or should have known that the tax withholding was not being paid? Did they have control over the company’s finances? These murky areas, according to the District court, made the summary ruling improper. The officers might have evaded the IRS noose, but it pays to take withholding taxes seriously, because the IRS sure does.

 

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Important Tips for Filing Amended Tax Return

March 22, 2013 By

Errors are likely to be committed during tax filing, and the only remedy is to understand how to fix them. Actually, some of these errors may not require any fixing, but it is important to take note of the following important tips:

1. Situations to Amend: Normally, if your filing status, income, number of dependents, crucial tax deductions, or tax credits were erroneously reported or omitted from the original return, then you should amend.

2. When You Do Not Have to Amend: There are some circumstances that don’t require an amendment. Math errors or requests of missing forms like the IRS Form W-2 and schedules during the tax return processing are automatically handled by the IRS. You consequently don’t have to amend your return.

3. Necessary Forms: To amend your return, use the IRS Form 1040X-Amended U.S. Individual Income Tax Return and Forms 1040, 1040A, 1040EZ, 1040NR or 1040NR-EZ to amend a previously filed return.  You must see to it that the box for the year you are amending is correctly checked on the IRS Form 1040X. Note that amended tax returns cannot be electronically filed, you have to do it manually and mail them to the IRS.

4. More than One Amended Returns: Use different 1040Xs if you are emending returns for multiple years, each year with a separate form. They should also be mailed in separate envelopes to the right IRS processing center (read the instructions on the form under “where to file”).

5. The IRS Form 1040X Columns: The 1040X has three columns; column A has the original figure as filed in the original return, column B shows the changes made and column C, the amended information. You can find explanations about certain changes and the reasons for these changes at the back of the form.

6. Other Forms and Schedules: If the changes you make affect other schedules or forms, attach the affected forms to the IRS Form 1040X and mail them together. You risk delaying the processing if this is not done.

7. Extra Refunds: If the amendments you make result in more refunds, only file the Form 1040X after receiving the original refund, cash the check, and wait for the extra refund.

8. More Tax: If after amending, you owe more taxes, just file the 1040X and pay the extra tax as soon as possible, as delays might result in increased interests and penalties.

9. When to File: Amended tax returns must be filed within three years from date of filing the original one to qualify for any eligible refunds or two years from when the tax debt was paid-whichever that is later.

Finally, the normal processing time for amended tax returns is between eight and twelve weeks, so only follow up if you don’t receive communication from the IRS on the status of your returns after this period.

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Caution when Opting to Take Out a Refund Loan

February 22, 2013 By

Tax filing season is characterized by a plethora of ads; independent tax preparers, national chains, online filers, software companies-all employing various tricks and strategies to get the attention of taxpayers patiently waiting for their W-2s and other tax documents. Some come up with alluring offers, especially with the lump sum refunds some “experts” promise. Taxpayers are allowed to exercise their own choice in selecting a preparer, but should never be duped into accepting any of the too-good-to-be-true tax deals, especially on the web.

Refund Anticipation Loans and E-Filing: The Trigger

Most of these programs were triggered by the introduction of the Refund Anticipation Loans (RAL) which was merely an incentive to encourage more taxpayers to file online as opposed to paper filing. It was actually alluring, especially with the idea of having your refund in just 3 or 4 days while it takes up to 6 to 8 weeks when filing manually. With e-file, it now takes a very short time to process tax returns. Coupled with direct deposits, it is possible to have the refunds done in between 8-10 days. Financial institutions and even banks have teamed up with tax preparers to meet the swelling demand of those in need of quick cash.

Scrutiny

Before accepting any loan proposal, you must carefully asses the lender and the tax preparer. Find out if the preparer is registered with a PTIN-if he or she doesn’t, run: it might be a scam! Ask about the mode of loan repayment, fee, and interests. Ensure that you get a copy of the filed return if the prep is filing on your behalf-among other cautionary measures. See to it that all loan agreements are put on pen and paper, signed by both parties and keep your copy.

The tax business is considered lucrative enough and has attracted both honest experts ready and committed to earn living legitimately assisting taxpayers. On the other hand, there are many fly-by-night players out to make a quick buck. Don’t forget to evaluate the tax preparation fees charged; you shouldn’t pay more if someone else can charge less for the same service.

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Keep Documentation of any Tax Issues that Arise

February 15, 2013 By

Every taxpayer is entitled to a copy of the tax return for personal record keeping purposes. The copy is either mailed or e-mailed to the taxpayer depending on the mode of filing; either on paper or electronically. Over 70% of taxpayers are helped by tax preparers when filing. As a result, they share IRS notices with their preparers as soon as they are received. Some tax pros promise the taxpayers that they will address any arising tax issues with the source (mostly the IRS). Unfortunately, taxpayers only realize that nothing was really done by their preparer months later upon receipt of another notice, on the same subject from the IRS.

Many taxpayers have found themselves in trouble with the IRS because of cases they entrusted their tax preparers to take care of. Following up with your tax prep on the progress of their communication with the IRS is a good habit, especially when potentially facing harsh IRS consequences. You can ask for proof of all correspondence between your tax preparer and the state authorities or the IRS.

There is nothing embarrassing about requesting for copies of any correspondences done by the tax preparer. You must never forget that the IRS will hold you responsible and you may have to pay penalties or/and interests you could have evaded.

If you are an employer and someone else handles your payroll, request for a report that what was done is exactly what you expect them to do. You don’t have to be reminded by an IRS notice or phone call to realize that all is not well with your payroll taxes. Get copies of every deposit, issued checks, 941s and 940s-print copies of all online transactions. The same applies if you are using a payroll service, make certain that indeed deposits are being made on schedule.

Taxes are important; state and federal authorities expect nothing short of perfection in filing and payment. Some due diligence with those who manage your taxes will go a long way in safeguarding you from a lot of tax-related challenges with the authorities.

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Increased Property Taxes and the Challenges Homeowners Face

February 8, 2013 By

Recent reports indicate that cities and counties are increasingly filing for bankruptcy. To cater for their ever increasing budgets, some local authorities have introduced new ways to raise money. Property taxes have been steadily rising over the years, resulting in an extra tax burden for homeowners who still have to pay their respective state and federal taxes.  In a recent report by the Rockefeller Institute, the trickle-down effect being employed by local governments may not just be working as expected as revenue collected through levying local property taxes has been declining despite an increase in the overall state revenue.

Most of the increases in annual property tax bills are as a result of minimal adjustments to the cost of living. Whenever local authorities face revenue deficiencies, they turn to property owners in a deliberate move to fill the budget gaps. Some cities have already announced increases in property taxes-find out from your local authority if you are affected.

  • Cook County, Illinois: Property values are dipping but taxes are rising steadily.
  • Cincinnati, Ohio: To help renovate a park, music center and build a new police station, a $10 charge for every $100,000 in home value is administered.
  • New Hampshire: Discussions are underway on possibilities of constitutional state tax structure changes due to the increases in property taxes
  • Philadelphia: Business use and occupancy taxes on businesses, and property taxes set to increase by 19% and 3.6% respectively to support its insolvent school district.

How to Guard Yourself from Increases in Property Taxes

If you reside any of the states or counties threatened with an increase or change in property taxes, you can guard yourself through a number of ways;

  •  Home Value: See to it that your home is appropriately valued and notify your appraiser if the value has declined.
  •  Make use of Exemptions and Rebates: If there are any exemptions in your area, take advantage. Some include those targeting seniors, veterans, military officers, disabled persons, or for personal residences, among others, go ahead and claim them. You can exempt up to $74,000 worth of home improvements in Cook County, Illinois for up to five years.
  • Talk to Experts: Just by talking to a property tax assessor or reviewing his or her website, you may learn a trick or two on how to lower your property taxes.

Finally, it may be worthwhile to hire a professional to help you reduce your property-related tax obligations, especially if you pay more than $1,000 annually. Review the expert’s qualifications and experience before hiring him/her.

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The Dangers of Not Filing Taxes

January 30, 2013 By


There is absolutely no justification to tax non-compliance, at least in the views of the IRS. However, the IRS estimates that the annual federal net tax gap is more than 385 billion dollars, which represent 15-16% of non-compliance. The main triggers of tax non-compliance, according to the IRS include factors like income under-reporting (80%), tax underpayment, non-payment and non-filing of returns (10% each).

The IRS has established a number of measures to net defaulters and narrow the tax gap. Unlike late-filers who miss the tax filing deadline but still go ahead and file, even the following year, non-filers don’t file at all. Of course there are some serious risks involved; likelihood of attracting an IRS audit, penalties, interests, and sometimes, you may even face criminal charges. There are three main categories that typical non-filers fall into; the procrastinators, the tax protestors, and the uncooperative non-filers.

Using millions of the delinquent tax returns, the IRS, before finally contacting non-filers on the state of their tax return statuses, normally gathers significant information about them. These include; their occupation, income sources, bank and savings accounts locations, addresses, age, AGI-Adjusted Gross Income of the last filed returns and paid taxes, years of delinquency, standards of living, amongst others. They use public records to find evidence on any unreported income, assets, professional association membership records, business licensing bureaus, amongst others. The IRS is usually thorough in its research and you have to be really good to hide for long.

The IRS also tries to establish the reasons why you haven’t been filing your tax returns as required by law. When eventually, you are contacted by an IRS examiner, you are required to furnish the taxman with some information for defaulting; is it due to lack of education, inability to pay or lack of records? If you are cooperative, you will be offered required information and guidance on how to go about filing your tax return. However, third party contacts may have to be made if you don’t cooperate with the IRS to establish your income. If any subsequent cases of tax evasion, incorrect statements or refusal to avail crucial records are detected, the IRS may resort to criminal investigation.

The IRS always tries to contact taxpayers concerning every move it makes. If you fail to respond to their inquiries, then it can go ahead and work out a tax return based on assessments stipulated in the Internal Revenue Code 6020(b). You can avoid criminal tax investigation by timely and voluntarily disclosing any considerable unreported tax liability and cooperating with the IRS.

In any case, the right thing to do to avoid all these inconveniences is to come out clean, comply and remain compliant.

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Access Your Social Security Statement Online

January 16, 2013 By

Taxpayers can now access their Social Security benefits online. According to an announcement by Social Security Administration (SSA), the online version is a facsimile of the normal statements that are mailed to taxpayers annually. All you have to do is go through the registration process and upon identity verification; you will be able to see how much retirement benefits you have. It is also possible to make corrections to the contribution history for any inaccurate or missing information.

The main notable shortcoming that dampens the otherwise good news, is the complex process involved in setting up an account. The Social Security Administration (SSA) is relying on information from Experian to authenticate the identity of the taxpayers. To sign up for an account, one has to be at least 18 years, and then read through the usual terms of service and requirements. Fortunately, they are written in a very simple language and are not so long and boring.

You have to go through three basic steps to create an account. First, you will be required to fill in your full name, address, contact details, and Social Security number. Thereafter, answer some basic questions about your credit rating via Experian. There is a question about how old your car loan is and the bank used. This information is only used for verification purposes but not stored by the SSA.

Finally, you are required to set up a username and password for future access to your SS account and statement. You will also be required to provide an email and some security questions to be used in regaining your password, just in case you forget it. There is a possibility that some problems could make it impossible to verify a taxpayer’s identity. If this happens, the statement could be requested online or simply visit the nearby Social Security office with a valid ID and you will be able to set up an account.

The online statements are best suited for individuals involved in retirement or tax planning. It is recommended that every taxpayer checks his or her statement every few years to ensure that what is contained in the account is exactly what they have saved for. The Social Security Administration (SSA) uses the W-2 that is sent out by employers and not whatever is contained on the taxpayer’s tax return. If they don’t match, the problem can always be corrected with ease.

Taxpayers aged over 60 years should expect statements from the Social Security Administration (SSA). This is done to all taxpayers nearing retirement but have yet to start drawing SS. Plans are underway to send these statements to taxpayers starting from the age of 25.

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The Challenges with Tax Refunds

January 11, 2013 By

Every year, taxpayers are treated to different depressing tax stories. In 2011, the processing of returns belonging to individuals paying their first-time homebuyer tax credit was immensely delayed. Occasional hold-ups are becoming part of the filing of the tax filing process and the IRS has tried to streamline the payback process and made changes to the 1040. You can now directly enter the payback amount on the return and you don’t need any attachment.

Name Changes
In its effort to stamp out tax identity theft and related frauds, the IRS introduced a new computer protocol that really slowed down the whole process. It was more intense earlier in the year when almost everyone was dashing for tax refunds. With many fraudsters masquerading all over and ready to snatch refunds, the IRS pays close attention at the names used on tax returns. Most taxpayers who change their filing statuses, say they get married and choose to file jointly, miss crucial factors. If you adopt the name of your spouse, you must ensure that all records are changed accordingly. Change of name is simple, write to the Social Security Administration about the name change to avoid any suspicion from the IRS.

Bank Account Details
With most Americans owning bank accounts, and some fraudsters targeting them as well, banks and other financial institutions have also tightened their rules. Direct deposits are common and fast, but you may no longer have to use the routing numbers when depositing funds directly. However, Form 1040 clearly indicate that you have to ask for the right routing number from the financial institution whenever the number on deposit slip differs from the one on checks, or the deposit is to a savings accounts that bars you from writing checks, or if the checks point out that they are payable via a financial institution that differs from the one you have a checking account.

Wrong Refunds
It is very possible that the amount of refund you expect is not likely to be the one you eventually receive from the IRS. You can receive more or less than you apply if your math was incorrect and the IRS corrected it, incorrectly claimed deductions or credits, improper crediting of the tax payments, or you owe the government some debt like student loans.

You can spend or save wrong refunds that are less than you expected and pursue the rest. However, hold onto more-than-expected refunds until it is clarified, who knows, it might be your lucky day, but never rule out a miscalculation from the IRS’s end; Uncle Sam will come for his money, so don’t squander it, not just yet!

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