Reporting Tips To The IRS

tip income

 

Most of us at one point in time or another pick up a side job. With the pressures of bills or emergency expenses facing us, it makes sense to earn some extra income.

If your side job also includes receiving tips from customers, it’s important to understand the “hows” and “whys” of reporting tip income.

The IRS requires taxpayers to report ALL income, including tips. You are required to report your tips if:

  • You earn more than $20.00 in tips. Report the initial $20.00 plus anything over and above that amount.
  • Tips are not included as a required gratuity or service charge instituted by your employer.
  • If you have a slow month and don’t earn $20.00 in tips, you don’t need to report any tip income you do receive, as long as it is under the $20.00 threshold.

If your employer has attached an automatic gratuity or service to their price structure, you do not need to report that gratuity, even if your employer distributes the service charge or gratuity to you and other employees.

For example, if you’re have a side job as a limo driver and your employer adds a 5% gratuity to their rates, you do not need to report your share of the gratuity as tip income.

On the other hand, if at the end of the night, your customer tips you $50.00 for a job well done you will need to report the cash tip.

Tips can also be in the form of credit card charges, cash, gift cards, transit or event passes, and other gifts instead of cash. You do not need to report the value of non-monetary tips.

How to report your tips

You will need to get the IRS 4070 form from your manager, payroll department or HR department. Fill it out with all the required information  and return it on or before the 10th of each month.

Your employer will then take the standard deductions for taxes and social security just as they do for your regular pay.

Why to report your tips

As with any tax matter, the IRS will assess penalties for withholding or under-reporting information, especially your income.

While it may be tempting to not report your tips in order to get caught up on expenses or to save for a vacation, it is essential that you report tip income.

If you choose not to report your tip income, you could face penalties and fines for failure to report all of your income. Consequences can include a penalty equal to 50% of the applicable payroll taxes on the tips. This penalty will be in addition to any unpaid taxes you owe.

In addition, accurately reporting your tips will ensure that you receive the correct amount of Social Security and Medicare benefits once you become eligible.

Keep accurate records of your tips since you will also need to report them at the end of the year when you file your tax return.

Fill out the IRS 4070 form, and return it to your manager or payroll department on the 10th of each month. Doing so will ensure that you are accurately reporting your income to the IRS.

 

What You Need To Know Before Hiring A Tax Resolution Firm

 

tax resolutionNot all tax resolutions firms are alike. For every legitimate tax resolution firm, there is an unethical, fly-by-night tax firm. By exercising caution, asking questions and performing some research, you can avoid the scam firms and hire a legitimate firm to represent you before the IRS.

Standing with the Better Business Bureau: Look for a firm that is in good standing with the Better Business Bureau.

Track record/longevity: You will want to hire a firm that has an established presence in the business community and a solid track record.

Fee structure: Beware of firms that insist on payment up front. In most cases, you will be asked to pay a retainer once they agree to take on your case. Ask for the firm’s written fee schedule and payment policies.

Ask for an estimate or summary of expected charges. If you are billed periodically throughout the case, all billing charges should be clearly outlined; some firms will utilize case managers, paralegals and other personnel in addition to the tax professional handling your case.

Avoid firms that charge a flat rate for all cases, regardless of their complexity. Legitimate tax resolution firms will base their fees on the complexity of your individual case and will charge you accordingly.

Beware of upfront promises: Avoid firms that promise a specific outcome or resolution of your case. The outcome of your case can’t be determined by the tax firm. The IRS has the final say in the outcome of your case, not the tax resolution firm.

Steer clear of firms that will take on our case, regardless of whether or not you qualify for their assistance. A legitimate firm will assess your case to determine whether or not they can assist   you, and whether or not you are eligible for any of the tax relief programs (OIC, installment agreements, lien releases) offered by the IRS.

Perform due diligence: Utilize tools such as Yelp, LinkedIn, and Google to research the owners and staff of the firm. If a tax attorney will be handling your case, make sure that individual is in good standing with both the bar association and the IRS.

As mentioned earlier, the firm should also have excellent ratings through the Better Business Bureau.

Facing a serious tax matter requires competent professional representation. Hiring a tax resolution firm is a solid investment that will save you time and money in the long run.

A legitimate tax firm will have professional staff who are readily accessible, in good standing within the industry and within their professions, and who will provide an honest assessment of your circumstances and eligibility for any IRS-based tax debt relief programs.

 

 

Choosing A Top-Flight Tax Attorney

 

tax attorney

The prospect of hiring an attorney for a complex tax matter can be intimidating, particularly if you’ve never had to hire an attorney before. A top-flight tax attorney isn’t necessarily the attorney who works as part of a large big-city firm.

A top-flight attorney is an attorney who is familiar with your tax matter, and who is accessible and willing to answer your questions. Their rates are within your budget and they are willing to communicate with you during each phase of your case. Outstanding tax attorneys can be found within tax firms or as sole practitioners.

Knowing what to look for in a tax attorney is the first step in seeking the resolution you need for your tax matter.

Where to start

In addition to Yelp reviews, seek recommendations from colleagues, neighbors or friends that have retained a tax attorney. Contact the state bar association for referrals to a tax attorney in your community. The bar association can also refer you to low-cost attorneys if you are of limited means.

Once you have several referrals, contact each attorney. Some will offer a free consult, while others will charge for their time, even if you decide not to hire them.

Make the most of your free consult time. Focus your questions on the following areas besides your tax matter:

Experience: Besides length of time in practice, has the attorney worked with clients in situations similar to yours? What was the outcome? How many similar cases has he or she handled?

Knowledge: Does he or she specialize in taxation, real estate and/or small business matters? Are they familiar with the precedent cases that pertain to your case, and do they have extensive knowledge of IRS tax code and regulations?

Your attorney’s degree of knowledge will directly affect the outcome of your case, so choose wisely.

Communication, availability and rapport: Will your attorney communicate with you directly, or will your case be managed by a paralegal staff during the initial stages? Will it be easy to reach your attorney quickly if you need to?

Does their communication style and preference match your own (if you prefer email/text communications for non-secure conversations, look for an attorney who is comfortable with those means of communication).

Is your attorney willing to meet with you in person? If you prefer face-to-face interaction throughout all stages of your case, look for an attorney who will be willing to accommodate communication preference.

Are you at ease in speaking with the attorney, or do you feel intimidated or rushed? You want an attorney where there is an easy rapport with clear communication.

Fee structure/affordability

While no two tax attorneys are alike in their communication style or level of experience, there are several fee structures that are common in the legal field:

Flat fee: You will pay the attorney a set fee, based on the nature and complexity of your case.

Payment arrangements: Mutual agreement between you and the attorney whereby you pay a set amount each month until the bill is paid in full.

An ethical tax attorney realizes that legal costs can create a hardship for most consumers. To that end, ask about alternative pay structures such as reduced retainers or applying your tax refund to your legal costs.

If the attorney or law firm is unwilling or unable to accommodate your income limitations, ask for a referral to a lower-cost attorney or firm  or contact the local bar association for a referral.

Facing a complex tax issue that requires legal counsel is stressful and time-consuming, particularly if you’ve never had to hire an attorney. By contacting several attorneys and asking pointed questions, you will find the best attorney for your tax case.

 

 

 

Who Can Represent You? A Quick Guide To Tax Professionals

 

professional

When dealing with the IRS, many people prefer to have someone represent them during IRS proceedings. If you’re facing an IRS matter and wish to have a representative, here is a brief overview of the professionals who can help.

Limited representation

The following professionals can represent you before the IRS only if they prepared and signed your tax return:

  • Business partners
  • Employees
  • Relatives
  • An officer of a corporation, professional association or other organization

Limited representatives can’t represent you in matters such as IRS collections, appeals, estate closures, or in tax court.

Additionally, the people listed above can only appear before certain IRS representatives:

  • Revenue agents
  • Customer Service Representatives
  • IRS employees in similar categories

Unlimited representation

When you are facing a more complex IRS matter such as collections, appeals, tax liens, and estate closures, the following professionals can assist you:

Tax attorneys: Look for an attorney who is in good standing with the state bar association and with the IRS. Additionally, you will want to find an attorney who ether specializes in taxation, or who is a general practitioner with additional coursework in taxation.

Certified Public Accountant (CPA): CPAs have either a Bachelor’s or a Master’s degrees from an accredited college or university and have passed the state CPA exam. In order to represent you before the IRS, your CPA must be in good standing with the IRS, with no license suspensions or disciplinary actions on their record.

CPAs are especially skilled in reviewing and analyzing financial statements and tax returns.

Enrolled Agents (EA): An EA is a licensed tax practitioner who has been authorized by the U. S. Department of the Treasury to represent taxpayers in tax matters. The EA designation is the highest credential awarded by the IRS, and there are over 48,000 EAs in the United States.

Facing an IRS proceeding on your own can be intimidating. By hiring a qualified professional to represent you before the IRS, you’ll have someone who will ensure your rights are being upheld and who can negotiate with the IRS on your behalf.

By understanding the difference between limited and unlimited representation, you will be better prepared to find the tax pro who is best suited to your needs.

Always look for a licensed tax pro who is in good standing with the IRS as well as with their professional association. Speak to several within the same level of representation. Doing so will ensure you have the best person to represent you before the IRS.

 

DIY Tax Defense: The Installment Agreement

 

installment agreement

If you’re facing the end of tax season with a large tax bill that is beyond your means, the IRS installment agreement is one possible option available to you. In addition to the Offer In Compromise or the CAP program, the Installment Agreement is available to taxpayers who can’t pay their tax bill in full.

Eligibility

You must owe less than a total of $50,000 in taxes, penalties and fees. Businesses must owe less than $25,000 including penalties and fees.

How it works

  • Complete IRS form 9465
  • Complete IRS form 433F
  • Call the IRS number shown on your tax bill and follow all instructions
  • You may also apply online
  • Pay the minimum monthly payment
  • File all requested tax returns and pay taxes in full and on time. If you are unable to do so, contact the IRS immediately.
  • All future refunds will be applied to your outstanding tax bill.

If at any time you are in danger of defaulting on your installment agreement, contact the IRS right away to make alternate payment arrangements.

The IRS will not initiate collection actions against you if:

  • An installment agreement is being considered
  • While an installment agreement is in effect
  • 30 days after an installment agreement request is denied
  • During the IRS review period for an appeal of a denied or terminated installment agreement

As with any IRS payment arrangement, it is crucial that you provide all requested documentation within the timeframe established by the IRS, and adhere to the agreement if it is approved.

If you experience any changes in your financial circumstances, notify the IRS right away to see if you are eligible to have your installment agreement amended to reflect your current financial scenario.

If for any reason you don’t receive your monthly statement, send your payment to the IRS address as stated on your installment agreement. Never skip a payment.

Dealing with the IRS on your own can be intimidating particularly if you’re unaccustomed to handling your own complex financial transactions.

When in doubt, enlist a licensed tax professional to help you determining your best course of action. Your tax pro will discuss all of your available options, negotiate with the IRS on our behalf, and ensure that your rights are upheld in any IRS tax proceedings.

 

 

What You Need To Know About The Offer In Compromise

offer in compromise

If you’re facing a large tax bill with the IRS but lack both the means and the assets to satisfy your debt, the Offer In Compromise (OIC) is one option to consider.

The OIC program allows you to pay a lesser amount while permanently settling your tax account.

You’ll first need to complete IRS For 433-A, in which you’ll need to fill out completely. The IRS will take the following into consideration when evaluating your request for the OIC program:

  • Ability to pay
  • Income and expenses
  • Overall value of any existing assets

It’s a good idea to utilize the IRS’s pre-qualifier tool before completing the OIC packet. You’ll gain a clearer understanding if the OIC program is suitable for you.

If you decide to move forward with the program, you will need to submit the following:

  • Your completed 433-A form, along with IRS Form 656.
  • The $186.00 application fee, along with your initial payment.

If you  meet the Low Income Certification guidelines (refer to your OIC booklet for guidelines), you are exempt from both the application fee and the initial payment while the IRS evaluates your application package.

Payment options

If you are required to make an initial payment, it will vary based on the payment option you choose:

Periodic Payment: Submit your initial payment along with your application packet, and continue to pay toward the remaining balance in monthly installments while the IRS evaluates your case. If your OIC proposal is accepted, continue with the monthly payments until your balance is paid in full.

Lump sum cash: Submit an initial payment of 20 percent of the proposed balance under the OIC proposal, in addition to your completed application packet. Wait for the IRS to make a determination, and pay the remainder in five or fewer payments.

By understanding the OIC process, you will get a clearer picture of your options in the face of a sizable tax bill.

Not sure if the OIC program is for you? We have licensed tax professionals on staff who can assist you and answer your questions.

Get started today by clicking the “Contact” button on the top menu bar on our website, and choose the best communication method that meets your needs and busy lifestyle.

You don’t have to face a large tax bill by yourself. We’ll help you get the resolution you need and within a timeframe you can live with.

CAP: One Option For Your IRS Tax Defense

 

irs

 

You’ve taken the steps to challenge the IRS’s decision regarding your tax debt, and waited patiently for their decision. Unfortunately, the IRS didn’t rule in your favor.

The good news is that not only do you have recourse, you can take up your own defense if you wish to do so.

Acting on your own behalf can be to your benefit, particularly if you’re a low-income person. You’ll have access to a free tax clinic that can provide assistance as you formulate a plan of action and file the necessary paperwork.

One of the options available to you is the IRS’s Collection Appeals Program (CAP). Through CAP,  you’ll receive a quicker resolution of your tax issue than through other means such as tax court.

You’re eligible for CAP if your tax issue meets any of the following criteria:

  • If your Installment Agreement request has been denied or modified
  • If your Installment Agreement has been terminated or will be terminated
  • Before or after the IRS levies or seizes assets or property
  • Before or after the IRS files the Notice of Intent to Levy
  • The disadvantage to utilizing CAP is that their decision is considered final; you do not have the option of appealing the IRS’s decision.

Steps to take

  • Call the telephone number shown on your IRS notice
  • Tell the phone representative why you would like to the appeal the IRS’s decision and offer a solution
  • Be ready to discuss your case with a Collections Manager before moving forward with CAP
  • Complete IRS form 9423 within two days of your conversation with the Collections Manager

As intimidating as it may sound, you do have the option of taking the DIY approach to resolving your tax issue with the IRS. The CAP option allows you to resolve your issue in a timely manner and to permanently close your account with the IRS.

The Offer In Compromise: Is It For You?

offer in compromise

The IRS offers several repayment options for taxpayers, including the Offer In Compromise. Is it for you?

Note: The content in this post is not intended to replace the advice of a licensed tax professional. If you are facing a tax-related hardship, consult a tax professional to determine the best option for your unique circumstances

Facing a sizable tax bill is unsettling, especially if you lack the means to pay it. The Offer In Compromise (OIC) is one of the payment options available. Here is a brief look at the OIC and what it can and can’t do for you.

The OIC is designed for taxpayers who have the means to only pay a portion of their total tax bill.

Requirements

You’ll need to file IRS form 656, along with the $186.00 filing fee.

Generally you’ll have between 11-24 months to pay the agreed-upon amount.

The IRS will take into consideration your ability to pay, your income/assets and asset equity when determining your eligibility for OIC.

Eligibility

The IRS has designed an eligibility screening tool that you should use before applying for the OIC program. If you are eligible, you will need to complete the OIC form, (Form 433-A for individuals or form 433-B for businesses).

You’ll need to submit the forms along with the $186.00 filing fee and your initial payment.

Payment options

  • The IRS offers several different payment options:
  • Lump sum in cash
  • Periodic payments, in which you pay the initial amount and then make monthly payments while the IRS evaluates your application.
  • If you meet the low-income guidelines, you don’t need to submit an initial payment or the application fee, and you won’t need to make monthly payments while the IRS evaluates your offer.

If your offer is accepted:

You must meet all terms of the offer

Any tax refunds due during the calendar year will automatically be applied to your tax debt

Any federal tax liens will not be released until you have satisfied the OIC terms

If your offer is rejected, you and your tax professional have the right to appeal. You can file the Request for  Appeal form within 30 days in order for your appeal to be considered.

Facing a significant tax debt can be stressful. It’s always best to enlist a qualified tax professional when dealing with a sizable tax bill, especially if you lack the means to pay it in full.

Your tax pro can help you determine the best payment plan for your circumstances, and they can negotiate with the IRS on your behalf.

If you are in need of a licensed tax pro or if you are facing a large tax debt, visit us at indealtaxsolution.com and get in touch by using any of the available options under the “Contact” tab on the menu bar.

You don’t have to go it alone. We can help.

Don’t Let A Big Tax Bill Scare You: Tax Payment Options

If you’re facing a large tax bill, don’t panic. There are options available to you.

tax

If you’re like most hard-working taxpayers, the thought of a sizable tax bill is enough to make you break out into a cold sweat. However, the worst thing you can do is ignore your tax bill, since the legal and financial consequences can be far-reaching and far worse than the tax bill itself. There are tax payment options available to you. Here’s a look at some of them:

If your tax bill is $10,000 or less, you may be eligible for the IRS’s guaranteed payment plan. One thing to keep in mind is that the program doesn’t cover your fees and/or penalties, which could nudge your tax bill over the $10,000 threshold.

This program also doesn’t cover any delinquent employment taxes.

Under $25,000

If you owe more than $10,000 but less than $25,000, one tax payment option available to you would be the streamlined payment plan offered by the IRS. Under this plan, you would pay off your tax debt in 72 months or less. Additionally, this plan will allow you to have any tax liens released.

$25,000 or more

If you owe between $25,000 and $250,000, the IRS offers a streamlined payment program in which you pay off your tax bill within 72 months, but any tax liens  filed against you will not be paid off as part of this plan.

If you find yourself unable to pay off your tax debt in 10 years the IRS offers the partial payment plan.

You may need to liquidate certain assets in order to pay your tax debt under this plan, and the IRS will review  your financial information every one to two years to confirm that you are still eligible for this tax payment option.

Regardless of the program you choose, you’ll need to satisfy the following requirements:

  • Accurately disclose all income and assets
  • File all tax returns, including past due tax returns
  • You must agree to make timely payments

You may also renegotiate the terms of your payment plan if there is a change in your income. Less income due to job loss or other hardship may result in a lower payment, while to opposite is true if your income increases.

Facing a sizeable tax bill is stressful. At the same time, there are payment options available to you. Always consult with a licensed tax professional before negotiating with the IRS.

Your tax pro will negotiate on your behalf, and will also ensure your rights are upheld as your case progresses.

Don’t Panic: What You Need To Know About Filing An Amended Tax Return

Filing an amended tax return doesn’t have to be a pain.

amended tax return

You did it. You hit the tax deadline without a second to spare. You clicked the “submit” button on your tax software, stashed your tax documents, and went about your business.

A short time later, you realize you forgot to claim an exemption or additional income. Will you have sufficient time to file an amended tax return before the IRS takes notice?

Here’s the good news: your tax return won’t be flagged for an audit or you won’t be dealing with the IRS correspondence. Taxpayers have up the three years to file an amended return.

Here are the circumstances that call for filing an amended tax return:

  • Change in the number of dependents you can rightfully claim on your return, or forgetting to claim a dependent.
  • Change in your filing status
  • Forgetting to claim an exemption
  • Forgetting to claim all sources of income

On the other hand, you won’t need to file an amended return if there are simple math errors or if you forgot to include your W2 or 1099 forms. The IRS will automatically correct any math errors and they already have your W2 and 1099 information from your employer(s).

The forms you’ll need

You’ll need to use the 1040X form to file your amended federal return. Since each state’s amended form is different, you can access that information through your state’s tax board website.

You won’t need to file a whole new return. Just note the areas of correction on your 1040X and your state form, and the IRS and tax board will review the corrections and make the necessary adjustments.

The key is to file an amended return as soon as possible; you’ll want to claim the full refund to which you’re entitled, or have the updated figure for the taxes you’ll owe.

Unlike your primary return, you can’t electronically file an amended return since “e-filed” returns aren’t accepted by the IRS and/or state tax boards. Be sure to send the amended return certified mail, so you can verify the IRS and state tax board received it.

Major life changes such as divorce, death of a spouse or change in family size warrant filing an amended tax return. Although you have up to three years to file an amended return, it’s best to do it quickly.

You’ll have peace of mind knowing the matter is taken care of and the IRS and state tax board have all the updated information they need.

As with any tax matter, always check with a licensed tax professional regarding your individual tax scenario.