The New Tax Year Resolution You Must Make Right Now

calculator-1019743_1280Ignoring that past due tax debt will get your new year off to a stressful start

2015 will be history in a matter of days. If looking back on 2015 also includes an outstanding tax debt, addressing that tax debt needs to be at the top of your New Year’s resolutions list.

Penalties and fees

If you have not  yet paid your 2014 taxes, you’ve been racking up penalties and fees for each month of non-payment. The IRS assesses a non-payment penalty of 1/2 of 1 percent of the balance for each month after the initial due date. It may not sound like much, but it can penalties can add up to as much as 25 percent of the balance due.

That’s a lot if you’re on a tight budget, and penalties can add up quickly, not to mention past due notices from the IRS.

Don’t panic, and don’t ignore the IRS

Don’t assume the IRS will forget about those outstanding taxes, because their role is to collect tax payments from citizens. If you’re ignoring their written notices in hopes the IRS will forget and move on, it will never happen.

The IRS will become more aggressive with each passing month of non-payment. Regardless of where you are in this collection cycle, the IRS won’t forget. If you are facing asset seizure for non-payment of past due taxes, you need to take action immediately to protect your bank account and other assets.

Your best defense against the IRS

The bad news is you owe back taxes. The good news is that there are tax professionals who can help you. A qualified tax pro can determine if you’re eligible for an installment agreement, Offer In Compromise or Currently Non-Collectible status. A tax pro such as an Enrolled Agent or tax attorney can represent you in negotiations with the IRS.

One key advantage to hiring a tax pro: they know the complex IRS tax code inside and out, so you won’t have to. A qualified tax pro will also ensure your rights are upheld throughout the collection proceedings. They will also explain each step to you in terms that you can understand.

You won’t hear jargon or “legalese,” but you will hear an honest assessment of your financial circumstances and your options. Your tax pro can work with you in arriving at a payment arrangement you can live with over time.

If you’re facing 2016 with an outstanding tax bill, now is the time to take charge and take back your life. We have qualified tax pros on staff who can help you sort out your options, negotiate on your behalf with the IRS, and advise you every step of the way. Even better, they can translate that complex IRS jargon that might be difficult to interpret and understand.

If you’re ready to face 2016 with a clear plan of action, give us a call today at (888) 224-3004. You can also chat with us by clicking the white “Start Chat” button at the top of our homepage.

Either way, you don’t face to face past due taxes alone. We can help.

 

 

 

I Missed The Oct. 15 Deadline. Now What?

If you were unable to meet the April 15 tax filing deadline, chances are you filed for an extension that expires on Oct. 15th. What happens if you also miss the Oct. 15th deadline?

Unfortunately, you can’t file for a second extension; the IRS did away with that program in 2005. Instead, taxpayers are only permitted to file for one extension, using form 4868. Here’s what can happen if you missed the Oct. 15  deadline:

Penalties

The IRS assess the penalty/fines with the following formula:

  • 0.5 percent of your unpaid taxes for each month you fail to file a tax return
  • Five percent of unpaid each month after the Oct. 15 deadline
  • A maximum 25 percent penalty based on taxes owned for each month you do not file your taxes
  • A maximum of 25 percent penalty for any taxes you fail to pay

You can escape these fines and penalties if you can prove to the IRS that you encountered circumstances beyond your control, such as a natural disaster or illness that prevented you from filing on time.

What You Can Do

First and foremost, pay the IRS. Even if it is just a portion of what you owe, you will establish that you are making a good faith effort to pay your taxes. This demonstrates to the IRS that you have no intention of evading your responsibilities as a taxpayer.

File your return as soon as you are able; filing online will deliver the return to the IRS faster.

Promptly reply to any IRS correspondence, and keep them informed of your efforts to pay your tax balance. By having an open line of communication, the IRS will be more likely to work with you should you need to make payment arrangements.

If you are making payments by check, keep all copies of your cancelled checks. The same applies to any credit/debit card statements showing your payments to the IRS.

Missing the Oct. 15 deadline can set the stage for additional penalties and fines. File your return as soon as you are able, and make at least a partial payment to the IRS if you can’t pay the full amount due.

If you can demonstrate that your inability to file your return by the extended Oct. 15 deadline was due to circumstances beyond your control, the IRS may waive the additional fines and penalties.

Life happens, and running afoul of the IRS can be one of the consequences of missing a tax deadline. Keep an open line of communication, demonstrate good faith efforts to make your payments, and you’ll be able to take control of your taxes…even after the deadline.

What Is The First-time Penalty Abatement?

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If you’re like most taxpayers, you do your best not to run afoul of the IRS. After all, you don’t want to get saddled with penalties for late payment, late returns, or any other offenses, right? However, things happen: you miss a tax filing deadline, or send in your tax payment later than you’d like. The resulting tax penalties aren’t pretty, but you may have some recourse, especially if you haven’t had any prior penalties.

What Is The First-time Penalty Abatement?

The IRS established this penalty relief provision for first-time “offenders” who are otherwise in good standing. Under the First-time Penalty Abatement program, you could get your penalties reduced or eliminated.

While the IRS is strict about imposing penalties, they do offer a break to first-time offenders. If you’ve never incurred a tax penalty before, this program could be your means to a lighter penalty.

What’s the catch? You will need to meet certain guidelines.

Reasonable Cause: Suppose you were ill on tax day and didn’t file your return, or if you were dealing with other circumstances beyond your control. Your penalty abatement request would fall under the Reasonable Cause category.

IRS Error: You’ll need to provide supporting documentation for this claim, but if you can determine that the IRS made an error in calculating your tax liability, you could receive a penalty abatement or reduction.

Administrative Waiver: The majority of first-time penalty abatements fall into this category. If you have no prior penalties with the IRS, and this is your first time you’ve failed to follow IRS regulations, the IRS may be willing to grant you a penalty abatement.

If you’ve run into a tax penalty due to minor oversight or circumstances beyond your control, you may be eligible for the First-time Penalty Abatement program. You have the option of requesting the abatement on your own or consulting with a tax professional if you prefer.

 

Five Famous People Who Got Busted for Tax Evasion

Chances are, you’ve read the “Celebrities…They’re Just Like Us” section in a famous gossip magazine while waiting in line at the grocery store. While their idea of “Just Like Us” and reality are two separate matters, famous folk are just like us in that they can run afoul of the IRS. Read on to learn about five famous people who got busted for tax evasion.

Martha Stewart

Martha Stewart, with homemaking empire and endorsements  didn’t have to worry about living paycheck to paycheck like most people. Unfortunately, her sizable income and multiple real estate holdings left her in hot water with the IRS. Ms. Stewart was on the hook for $200,00 in back taxes to the State of New York. The reason? Her East Hampton estate. Her rationale was since she didn’t occupy it a good deal of the time, she was exempt from paying the property taxes.

Lesson: Always pay property taxes, even on investment properties.

Richard Hatch

As the winner of the first season of the “Survivor” franchise, Richard Hatch earned a cool million on national TV. He failed to report those earning, and the IRS tribe has spoken: he received a six-year sentence for evasion, but only served three years. As a condition of his release, he was supposed to amend his tax returns to reflect his million dollar winnings.

Instead, he neglected to follow through and earned another ticket to the slammer instead.

Lesson: Report all of your income from all sources. Hatch was a visible target because of his short-lived reality show fame, but the IRS has no problem going after average people for tax evasion.

Annie Lebovitz

This famous photographer’s work has appeared in Vanity Fair, Rolling Stone, The New Yorker and other national publications. It was her Rolling Stone photo of John Lennon and Yoko Ono in 1980 that brought her out of the shadows and into the forefront of modern photography. The income landslide that followed lead to poor spending habits and extravagant living.

In 2009, Lebovitz was over 2.1 million dollars in arrears for the 2004-2007 tax years. In order to secure a loan to pay off that monster debt, she has to pledge the copyright to all of her past, present and future work.

Al Capone

Even the true Original Gangster couldn’t outrun and outgun the IRS. While the federal government’s charges didn’t stick, the IRS caught up with him and he plead guilty to tax evasion in 1931.He served 7 years of his 11-year sentence. After his release, he was never able to fully reestablish himself in the world of crime.

Wesley Snipes

This popular action star failed to pay taxes from 1999-2004. Although he considered himself to be a resident alien due to his religious beliefs, he was in fact a legal citizen of the U.S. He was charged with tax evasion and ordered to serve a three-year prison sentence beginning in 2010. After losing his appeal, he served and was released in 2013.

His tax bill was over $10 million in taxes, penalties and interest.

Celebrities are “Just Like Us” only in the respect that they must pay taxes like the rest of us. Just like us, they will get charged with tax evasion if they don’t pay up.

Lesson learned: Whether your tax bill is big or small, the IRS wants it all.

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.

 

 

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.

 

 

 

What You Need To Know About IRS Collections

Photo: David Playford/freeimages
Photo: David Playford/freeimages

 

Things can happen. An unexpected medical bill, unpaid time away from work or other financial emergency is enough for most people to fall behind on their tax obligations to the IRS. Maybe you really meant to pay your tax bill, but somehow it got pushed aside when an emergency came up that wiped out your savings or other financial reserves earmarked for paying your taxes.

In some ways, the IRS collection process isn’t really that much different than credit card collections or medical collections. Even with that, it’s important to be aware of how the IRS goes about collecting past due taxes from taxpayers.

The IRS places a high priority on past due taxes and is intent on collecting all past due tax debt. If you’ve set aside your IRS collection notices out of fear or hoping the debt will somehow be written off, you could be in for a rude awakening: the IRS places older tax debt at the top of its list and will take action to recover that debt.

IRS debt can linger for years, depending on how much you owe them. You may end up facing years of collection activity, since the IRS makes it a priority to recover “old” tax debt. The IRS will continue to pursue you until the debt is paid off. Like credit card companies and hospitals, the IRS means business and wants the money that is owed to them.

You could be stuck making payments for years and living on a very lean budget while paying off your tax debt, including the balance due and any interest and penalties.

While it can seem like you’ll be forever saddled with IRS debt that will never go away, there is a legal time limit, or statute of limitations on IRS debt. Tax debt that is more than 10 years old is off-limits to them. If your tax debt is outside the statute of limitations, this could help you in deciding which course of action to take, or whether or not to take any action to pay off the debt.

When it comes to debt less than 10 years old, however, the IRS employs many of the same tactics used by credit card companies and hospitals: wage garnishments and levying assets. At the same time, there is one key difference: the IRS does not require a court order to do so. This will typically happen if you haven’t responded to any of the IRS’s correspondence regarding your tax debt.

If you want to avoid the nightmare of finding your bank accounts and other liquid assets frozen, or having a lien placed against your home and other assets, you must respond to any communication from the IRS. Failing to do so signals to the IRS that you have no intention of satisfying your tax obligation, and they will resort to stronger tactics such as wage garnishment or asset levy.

The IRS, like credit card companies and hospitals, takes debt seriously. They will prioritize unpaid debts; the older the tax debt, the more aggressive they are when it comes to collecting that debt. If you are tossing their notices in the trash out of fear or in hopes the debt will eventually be written off or forgiven, the IRS can and will initiate collection action against you.

Tomorrow: More about the IRS collection process.

 

Your Guide to Tax Penalties

Photo: cohdra/morguefile
Photo: cohdra/morguefile

For most people, filing taxes carries enough headaches without worrying about penalties and fines from the IRS. Here is a recap of some of the most common IRS penalties and fines.

Late Tax Payment Penalty: If you owe a balance due on your taxes and don’t pay by midnight on the due date, the IRS will assess a Late Tax Payment Penalty. The outstanding balance will also accrue compounded interest. The best way to avoid the Late Tax Payment penalty is to file an extension if you feel you need more time to file your return or to save toward your balance due.

Underpayment Penalty for Estimated Tax: If you are self-employed and fail to pay enough toward your estimated tax due, the IRS will assess the Underpayment Penalty for your estimated taxes. The 1040 ES instruction booklet has a worksheet that you can use to calculate your estimated taxes due. A licensed tax advisor will also be able to help you calculate the correct amount.

Charitable Organization: If you run a charitable organization, your organization’s tax-exempt status is open to IRS scrutiny at any time. If the IRS determines that your organization is engaging in profitable transactions, they will revoke your charity’s non-exempt status and impose a fine.

Failure to File: The IRS will assess this penalty if you file your taxes late or not at all. You can avoid this assessment altogether by filing an extension; you will have an additional six months to gather your paperwork and tax forms. Be sure to file the extension before the April 15th tax deadline.

Incorrect Reporting or Fraud: This offense carries the most severe penalty: as high as 75 percent if the IRS is able to determine that you attempted to submit fraudulent information. Additionally, there are penalties if you failed to report taxable income or if you exaggerated an expense deduction.

If you’re concerned that your tax filing scenario will put you in the line of IRS fire, consult a knowledgeable tax advisor. He or she will able able to assess your situation, advise you of your options, and can represent you before the IRS should the IRS assess a tax penalty or fine.

You can lessen your chances of being hit with an IRS penalty by filing accurate and truthful tax returns, filing on time, and requesting an extension if you are not able to meet the April 15th tax deadline. Doing so will reduce your chances of facing IRS fines and penalties.