What You Need to Know When Owing The IRS

If this is your first year with a tax balance, the thought of owing the IRS can be frightening. There’s no doubt you’ve heard everything from true stories to urban myths surrounding the power and the reach of the IRS. Very few entities such as the IRS have the ability to leverage assets and capital in order to recover a debt.

In most cases, however, you can prevent aggressive IRS collection tactics by understanding your role in clearing up a tax debt. By understanding these basics, you’ll be in a better position to formulate a plan for paying your tax debt.

Don’t Ignore IRS Notices

If you owe money for taxes, you’ll receive notices from the IRS via snail mail. Don’t ignore them or toss them in the recycling bin in hopes the IRS will forget. They won’t. Respond to each and every notice, and follow the instructions for payment.

If you can’t make the payment in full, call the IRS at number listed on the notice, and explain your situation. Despite nasty rumors to the contrary, the IRS is eager to work with taxpayers in resolving tax debt. The agent assigned to your case will explain your rights to you, and will make sure you understand them. Be sure to request a list of these rights in writing.

Understand Your Payment Options

If you can’t pay your tax debt in full, the IRS has several options available to you. Some of these options include:

While each of these options have their own qualification criteria, you’ll be able to avoid more aggressive IRS collection activity while paying off your tax debt.

Understand Due Process

Due process is a Constitutional right that guarantees everyone the right to go through an entire legal proceeding with no steps neglected or omitted. The same rule applies to IRS proceedings. If you’re not clear on the due process for your tax case, have the agent explain it to you or seek advice from a qualified tax pro.

Don’t Go It Alone

If the thought of dealing with the IRS leaves you cold, your best course of action is to enlist a qualified tax pro. Tax attorneys and Enrolled Agents have the ability to represent you in dealing with the IRS, and to negotiate with them on your behalf. They will explain your rights, review your case and help you determine which payment options you qualify for.

Your tax pro will also help you understand the complex jargon you might find in some IRS notices. A tax pro’s job is to understand and interpret tax law and tax codes so you won’t have to. That alone may well be worth the cost.

If you’re dealing with a tax balance for the first time, it’s easy to get unnerved at the prospect of dealing with the IRS. By understanding your rights, payment options and representation options, you’ll be able to tackle your tax debt with a solid understanding of the process. By enlisting a tax pro, you’ll have someone who can represent you and negotiate on your behalf.

We have qualified tax pros on staff who can help. Get started today by clicking the white “Start Chat” button at the top of the page, or give us a call. Don’t go it alone. We can help.



Moving On Up: Tips On Deductible Moving Expenses


You did it. After a long job search and lots of dead-end interviews, you landed a great new gig. Unfortunately, you’ll have to pull up stakes and move in order to be closer to this great new job. Good news: some of your moving expenses can be claimed as deductions on your tax return, which in turn will lower your overall tax liability. Read on for more information.


First and foremost, your move must be for work-related reasons only. Ditching the old neighborhood in and of itself won’t cut it. You’ll also have to start your new job within 365 days of your move date.

Here’s where it can get tricky: your new job has to be at least 50 miles away from your old home. For example, if your old gig was 30 miles away from your old home, your new job will have to be at least 80 miles away from your old location.

If you’re unemployed, however, and if your move is strictly for a new job, you’re exempt from the distance requirement.

Qualified Expenses

These expenses are deductible moving expenses:

  • Connection fees for the utilities in your new home
  • Costs associated with disconnecting utilities and services at your old residence
  • Shipping costs, including truck rental fees, vehicle towing, shipping costs for sending household good to your new location.
  • First 30 days of storage fees if you rent a storage unit to stash your furniture and other goods
  • Lodging expenses near your new home if you can no longer stay in your old home and you’re not yet allowed to take occupancy in your new home

Check out IRS Publication 521 for more detailed information.

The How-To:

On tax day, be sure to complete and attach form 3903 to your return. Add up the total and transfer it to page 2 of your 1040 form. The overall deduction will lower your tax liability and in some cases, increase the amount of your return.

Landing a great new job in a new location can be stressful and exciting at the same time. Keep in mind that most of your moving costs will be tax deductible, provided they meet the requirements above.


Get Your Small Business Off To A Good Start



Nothing beats the satisfaction of ditching the 9-5 grind in favor of starting your own business. You’ll have a direct impact on the success of your product or service, and you might even be able to achieve a better work-life balance in the process.

Unfortunately, small business are at higher risk of an IRS audit. Facing an audit is understandably stressful, especially for a rookie business owner. While no one can ever guarantee that your business will be audit-proof, here are some strategies for getting off to a good start with all the necessary records and paperwork; if the IRS should ever come calling, you’ll be prepared.

Keep Accurate Employee Records

This is especially true for payroll records if you choose to hire employees. Each employee will need to complete a W4 form, I-9 form, and any additional company-based forms you provide. Verify the accuracy of all information your employees provide, including address and social security number.

If you hire an independent contractor, they will need to complete a W9 form when they begin working with you. They must complete all required information, including their Tax ID Number (TIN) or social security number.

Hire A Numbers Guru

While there is plenty of DIY bookkeeping software available to small business owners, play it safe and hire an experienced bookkeeper or payroll service if you have employees and/or independent contractors.

They will be able to file quarterly payroll forms, and will deduct the correct amount from each person’s payroll each pay period. Miscalculating these figures is no joke; you may end up owing the IRS and state tax board a fair chunk of change if payroll taxes are miscalculated or under-withheld.

Sure, a numbers guru is an extra expense, but their services are also an investment in the long-term well-being of your business.

Keep Track Of All Expenses and Income

Even if you are a sole proprietor, it is imperative that you keep accurate expense records. Save any and all receipts and keep them organized throughout the year. You will need to be able to substantiate your expenses to the IRS should you ever be audited.

Keep copies of credit card statements, bank statements, receipts and any other expense documentation.

The same goes for income; even if you go it alone, you must keep accurate income records from all sources: credit card, cash, check, electronic transfer, third-party payment services.

If you have a bookkeeper, he or she will able able to track monthly income and expenses for you via bookkeeping software or app.

Hire a Tax Pro

While a bookkeeper can keep track of income and expenses, you’ll need a tax pro by your side come tax filing day. Filing a business return is more complex than a standard 1040, and your tax pro will be able to advise you further on sound tax strategies for your business. A tax pro can also negotiate with the IRS on your behalf should you ever face an audit or other tax matter.

Starting a small business can be challenging, risky but ultimately satisfying. By keeping accurate payroll, income/expense and tax records from the outset, you’re setting a healthy precedent for your business. While there are no guarantees your business will never face an audit, you’ll be in good stead with accurate records and a tax advisor by your side.


It Will Be Here Sooner Than You Think: Preparing For the October 15th Deadline



If you missed the April 15th deadline and filed for an extension, the October 15th cut-off date is rapidly approaching. Here is what you need to know in order to prepare for the deadline:

1. Paperwork: Regardless how you will be filing (DIY or with a tax pro) gather all the necessary paperwork now. That includes income documentation (W2s, 1099s, K-1s, if applicable). Confirm the information on these forms matches your name, address, social security number. Any discrepancies will result in delayed return processing and a delayed refund.

2. Social Security Numbers: Make sure the social security numbers for you, your spouse and your dependents are correct. If you are using a spreadsheet or app to organize your tax information, make sure the social security numbers are correctly recorded on the spreadsheet or in the app; incorrect or missing social security numbers will wreck havoc with your return and cause delays.

3. Deductions: Did you start a business, look for work, have a child, buy a home, volunteer or contribute to a charity? All of these activities are possible write-offs if you choose to itemize your tax deductions this year. There are additional deductions for child/dependent care, IRA contributions, medical expenses, and summer day camp for your kids. Tax deductions can lower your taxable income, which in turn will lower your overall tax liability.

Gather all of your expense receipts, and keep them handy for filing day. You’ll need to refer to them as you fill out your tax forms.

4. File Online: There are IRS-approved software packages for every budget, so avoid the long lines at the tax prep office and file online. Gather all of your tax records, set aside an hour or less, and file online. You’ll receive step-by-step instructions for each page, and support is readily available through the software package. If you select the direct deposit option for your refund, you can expect to receive the funds in about three weeks.

5. Request a Payment Plan: While you can’t request an extension to pay your taxes, you can request a payment plan. You’ll have up to six years to pay your tax balance if you qualify, and you’ll have payments you can live with.

With these tips in mind, the impending deadline need not feel like impending doom; instead it will be just another date on your calendar. Gather your paperwork, calculate your deductions, set aside some time, and go forth and file!

IRS Penalties Part 2: The Healthcare Penalty

Yesterday’s post discussed some of the IRS penalties attached to non-payment, missing information, or late payment of taxes.

While the passage of the Affordable Care Act allowed millions of uninsured people to access health care coverage and laid the groundwork for more extensive employer-based coverage, it also came with a penalty attached for non-compliance. If you’re now among the millions of Americans with new health care coverage, you may not know about this penalty.

Generally if the IRS determines you earn enough to purchase a policy on the insurance marketplace you are required to do so unless you have employer-sponsored coverage. If the policies you purchase aren’t sufficient for you and your qualifying dependents per IRS standards, you could still incur a penalty. Here is the breakdown for the 2015 and 2016 tax years:

2015: Fines will be $325.00 per adult and $147.00 per child to a maximum of the higher of either $975.00 or 2 percent of your income.

2016: Fines will increase to $695 per adult, $347 per child to a maximum of the higher of either $2085 or 2.5 percent of your income.

If you are a low-income person, you can obtain a waiver that will exempt you from both the penalty and the purchase requirement. While this may leave you uninsured if you live in a non-Medicaid expansion state, you won’t have to worry about being hit with a hefty fine if you can’t afford coverage for yourself and your family.

Love it or hate it, the ACA will be a part of our healthcare landscape for the foreseeable future. By understanding the IRS penalties attached to the ACA, you can exercise the option of either obtaining a low-income waiver, purchasing coverage, or paying the penalty at tax time.

As with any complex tax matter, it’s best to check in with a qualified tax advisor who can guide you in making the best decision based on your unique circumstances and tax scenario. You’ll learn whether or not you qualify for a waiver, and you’ll better understand all the options available to you.



Nickel and Dimed: An IRS Penalty Primer

It seems that everything has a late fee: utility companies, credit card issuers, even some daycare providers will charge a late fee if parents are late in picking up their kids. Naturally the IRS has a host of late fees, most of which can be avoided. Here’s a run-down of IRS late fees.

Underpayment Penalty

The IRS wants you to pay the full amount owed. This fine is charged quarterly at the higher of either three percent of the balance or the federal short-term rate. If you’re not sure how much you should pay in quarterly taxes, check out form 1040-ES for guidelines on calculating what you owe.

Late Filing or Late Payment

The IRS expects you to pay on time, and by not doing so, you could run into some hefty fees. The late filing fee is 5 percent each month you that you are late in paying what you owe, up to 25 percent maximum. If you are more than 60 days late, the penalty the higher of $100.00 or 100 percent of what you owe the IRS.

Dishonored Checks

If you write a check to the IRS that bounces or is “dishonored,” you’ll end up paying the lower of either $15.00 or the check’s amount (for checks under $750.00). For checks over $750.00, expect to pay 2 percent of the check’s total.

Failure to Pay Tax

There is a penalty for not paying your penalty. The IRS will give you 21 days to pay what you owe before assessing a penalty. Miss the 21-day window, and you’ll be charged 1/2 of one percent on the amount you owe each month, maxing out at 25 percent each year.

At the same time, if you request an installment agreement, you’ll only be on the hook for 1/4 percent for each month you have an outstanding balance.

Failure to Provide a Social Security Number

While it’s always a good idea to be protective of your family’s social security numbers, the IRS requires them on tax returns each year. You’ll be assessed $50.00 for each missing Social Security Number. It’s always a good idea to double-check your tax forms before filing them to make sure all the required information is provided. You’ll not only save yourself the headache of a delayed refund, but you’ll also avoid penalties for missing Social Security Numbers.

Tomorrow: A look at two more IRS penalties.




Summer Daycare Expense: Are They Deductible?


As the kids head back to school and return to  their normal routine, you may be wondering if their summer day care or summer camp expense is tax deductible. While they were necessary in order to provide your kids with supervision during the summer, it’s hard not worry about the expense. Here’s a look at how the Child Care Tax Credit as it applies to summer camps and summer daycare.

Eligible programs:

  • Day camps. Overnight camps are not eligible per the IRS guidelines
  • Daycare
  • Babysitter costs

If your children are under the age of 12, you can deduct a portion of the program cost or tuition. Likewise if your child has a disability and is over the age of 12, you can also apply the credit to their summer daycare/day camp costs.  Parents of qualifying children with disabilities can also deduct the cost of medications, home health care, and doctor visits.

As a parent or legal guardian of a qualifying child, you must use one of the following filing statuses in order to be eligible for this credit: single, Head of Household, qualifying widow or widower with a dependent child, or married filing jointly.

Additionally, you must be either:

  • Be a full-time college student for at least five months during the tax year
  • Be working full-time
  • Be unemployed and seeking work

You must also meet the income guidelines for each tax year as established by the IRS. If your adjusted gross income for 2015 is $15,000 or less for example, you can claim up to 35 percent of child care expenses on your tax return. As your income increases, the deductible percentage decreases.

As with any tax deduction, you’ll need receipts and records to substantiate your claim at the end of the year; such paperwork will come in handy if the IRS comes calling. If you didn’t collect any receipts or other records during the summer, most daycare and day camp programs will be happy to provide them to you; just remember to ask well ahead of tax day.

Summer child care and day camps can be expensive, but if you and your child meet IRS guidelines, you could deduct up to 35 percent of the costs at tax time. Doing so will also lower your overall tax liability and provide much-needed help with summer child care expenses.

Dude, Where’s My Refund? Why Your Tax Refund May Be Delayed


If you’re like most people, you look forward to your annual tax refund. You can get caught up on bills, buy something you’ve needed, get the car fixed or even get out of town for the weekend. Regardless of how you spend it, you look forward to that small windfall each year.

What if your refund is late, even though you filed electronically and filed on time? Here’s a look at the hows and whys of a delayed tax refund.

Reasons For Delays

Your refund might be delayed if there is an old debt that needs to be paid. The IRS in most cases will use your refund to offset that debt. Some examples include

  • Past due student loan debt
  • Back taxes
  • Child support
  • Any other qualified federal debt

Once the creditor receives their share of your refund, the IRS will issue you the remainder.

Even if you have no outstanding federal debt, the IRS can still withhold your refund if your address on your returns doesn’t match the address on your W2, 1099 or other tax documents, or if your bank account direct deposit information is incorrect or missing. If either are the case, the IRS will send you a notice requesting that you verify your information before they send you a paper check.

Checking the Status of Your Refund

Let’s assume you’re in the clear as far as owing any outstanding federal debt or child support payments. There are two popular tools for checking your refund status.

  • The IRS2Go mobile app is free to download to just about any mobile device. Use it to check your refund status.
  • The IRS website is available 24 hours a day. Click on the Where’s My Refund link and use the secure portal to check your refund status.

Regardless of which tool you use, you’ll need to have your social security number, filing status and the dollar amount of your refund available. You can then find out the status of your refund including the date it was received, processed, sent to your bank (if you requested direct deposit) or sent to your address if you requested a paper check.

You’re only able to check your refund status once a day, since both tools are only updated once daily, usually overnight.

If your status shows that your refund has been sent but you haven’t received it after a reasonable amount of time, you can request a paper check. You can access the IRS website and follow the prompts, or call the IRS’s toll-free number and follow the prompts on the automated menu. It’s a good idea to request a paper check if you suspect your original check has been lost or stolen.

If you requested an automatic deposit to your bank account, contact your bank before requesting a paper check. While government checks clear fairly quickly, some banks will hold the funds for a week or more to make sure they clear.

A delayed tax refund can lead to some serious nail-biting if you’re counting on those funds to help with expenses or a major purchase. If several weeks have passed and you haven’t received your refund, you have the option of tracking your refund status and requesting a paper check in the absence of any outstanding federal debt.

It’s your money, after all, and it belongs in one place: your wallet.


What You Need to Know About The October 15th Deadline



Last April, the tax deadline was staring you in the face and you just weren’t ready. You kept calm and filed an extension that gave you leeway until the October 15th deadline. You may not still be ready for whatever reason. Here are some important facts about the October 15th deadline.

Q: I’m not going to make the October 15th deadline. Can I still file my return?

A: Great news! You can still file your return after the deadline. However, you won’t be able to file online. You’ll  need to file your return by mail. Send the return via certified mail with a return receipt to be on the safe side. If there is ever a question as to whether or not the IRS received your return, you have proof that is was in fact received by them. Whew! Now they can take it up with their in-house staff.

Q: What is going to happen to my refund? Will I still get it or will the IRS withhold it because I filed late?

A: The good news is that you will still get the full amount of your refund from the IRS. However, it will take a few weeks for you to get the refund since you had to file by mail. It can take up to 8-12 weeks to get your refund.

Q: What about penalties if I owe taxes?

A: Here’s where it can get a little tough, especially if you’re on a tight budget to begin with: You will end up owing an additional 5 percent of the balance due, under the failure to file penalty or late filing penalty. You also may have to pay an extra 0.5 percent of your balance due for each month that your taxes were unpaid. You will essentially pay two penalties in the end: one for late filing and one for late payment of your taxes.

The thought of missing the extended deadline can be stressful. By filing your return as soon as you can after the deadline and by understanding the penalties involved if you owe taxes, you will have a clearer idea of the consequences of filing past the extended deadline. At the same time, if you are entitled to a refund, you will receive the full amount with no penalties deducted for filing a late return.

Robo-Auditing Part 2

As with any automated technology, robo-auditing has created more problems than it has solved. This time-saving but impersonal approach has led to more and more honest taxpayers getting the short end of the deal in terms of selection for audit. Here are some ways to legally bypass the automated system:

  • File your return by snail mail: Sure, this may take longer and it could be weeks before you see your refund, but an actual person will screen your returns instead of the an automated system. He or she will still screen your return for errors or missing/incorrect information, but there is also the advantage of a real live human being reading your return: they are easily able to determine which information warrants an audit and which return doesn’t.
  • Use discretion when posting to social media: Tax evaders and fraudulent taxpayers who post humblebrags on social media about their extra money, possessions, cars and vacations will catch the IRS’s attention in no time.
  • First and foremost, be honest: The best way to avoid an audit–automated or otherwise–is to be honest and consistent when reporting your income on your tax returns. In doing so, the prospect of an audit shouldn’t worry you regardless of how you file your returns.

The IRS takes tax fraud seriously. If the IRS has reason to suspect the information on your tax return is fraudulent, you could end up facing an audit. By being honest and forthright with the information on your returns, you reduce your chances of your return getting flagged for an audit.

To learn more about the audit process, refer to these entries.

If you’re facing an audit, we have tax pros on staff who can help. Click the white “start chat” button at the top of your screen to get started or give us a call.

You shouldn’t have to face an audit alone. We can help.