by steve | Mar 15, 2010 | Tax Help, Uncategorized
The tax filing deadline is approaching. If you don’t file your return and pay your tax by the due date you may have to pay a penalty. Here are nine things the IRS wants you to know about the two different penalties you may face if you do not pay or file on time.
If you do not file by the deadline, you might face a failure-to-file penalty.
If you do not pay by the due date, you could face a failure-to-pay penalty.
The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.
If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
by steve | Mar 12, 2010 | Tax Help, Uncategorized
I am a former IRS agent in teaching instructor with the Internal Revenue Service.
I not only work the program while at the Internal Revenue Service I taught the program as well.
Call us today for a free initial tax consultation.
THE IRS Offers In Compromise
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. If the liabilities can be fully paid through an installment agreement or other means, the taxpayer will in most cases not be eligible for an OIC. For information concerning installment agreements, refer to Topic 202.
In most cases, the IRS will not accept an offer unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (the RCP). The RCP is how the IRS measures the taxpayer’s ability to pay. The RCP includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. In addition to property, the RCP also includes anticipated future income, less certain amounts allowed for basic living expenses.
The IRS may accept an OIC based on three grounds. First, acceptance is permitted if there is doubt as to liability. This ground is only met when genuine doubt exists that the IRS has correctly determined the amount owed.
Second, acceptance is permitted if there is doubt that the amount owed is collectible. This means that doubt exists in any case where the taxpayer’s assets and income are less than the full amount of the tax liability.
Third, acceptance is permitted based on effective tax administration. An offer may be accepted based on effective tax administration when there is no doubt that the full amount owed can be collected, but requiring payment in full would either create an economic hardship or would be unfair and inequitable because of exceptional circumstances.
When submitting an OIC, taxpayers must use the most current version of Form 656 (PDF), Offer in Compromise. Except when an OIC is submitted based on doubt as to liability, taxpayers must also submit Form 433-A (PDF), Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B (PDF), Collection Information Statement for Businesses. A taxpayer filing an OIC based on doubt as to liability must file a Form 656-L, Offer in Compromise (Doubt as to Liability), instead of Form 656 and Form 433?A and/or Form 433?B.
In general, a taxpayer must submit a $150 application fee along with the Form 656. There are two exceptions to this requirement. First, no application fee is required if the offer is based on doubt as to liability. Second, the fee is not required if the taxpayer is an individual (not a corporation, partnership, or other entity) who qualifies for the low-income exception. This means that the taxpayer’s total monthly income falls at or below 250 percent of the poverty guidelines published by the Department of Health and Human Services. If the total monthly income falls at or below the poverty guidelines, the taxpayer may submit a Form 656-A (PDF), Income Certification for Offer in Compromise Application Fee and Payment, instead of the $150 application fee. The Form 656 package contains a worksheet and the IRS OIC Low Income Guidelines table to assist taxpayers in determining whether they qualify for the low-income exception. The Form 656-A and the worksheet must be submitted with the Form 656.
Taxpayers may choose to pay the offer amount in a lump sum or in installment payments. The tax law provides rules for “lump sum offers” and “periodic payment offers” submitted on or after July 16, 2006. A lump sum offer is defined as an offer payable in 5 or fewer installments. If a taxpayer submits a lump sum offer, the taxpayer must include with the Form 656 a nonrefundable payment equal to 20 percent of the offer amount. This payment is required in addition to the $150 application fee. The 20 percent amount is called “nonrefundable” because it cannot be returned to the taxpayer even if the offer is rejected or returned to the taxpayer without acceptance. The 20 percent amount will be applied to the taxpayer’s tax liability. The taxpayer has a right to specify the particular tax liability to which the IRS will apply the 20 percent amount.
The offer is called a “periodic payment offer” under the tax law if it is payable in 6 or more installments. When submitting a periodic payment offer, the taxpayer must include the first proposed installment payment along with the Form 656. This payment is required in addition to the $150 application fee. This amount is nonrefundable, just like the 20 percent payment required for a lump sum offer. Also, while the IRS is evaluating a periodic payment offer, the taxpayer must continue to make the installment payments provided for under the terms of the offer. These amounts are also nonrefundable. These amounts are applied to the tax liabilities and the taxpayer has a right to specify the particular tax liabilities to which the periodic payments will be applied.
Ordinarily, the statutory time within which the IRS may engage in collection activities is suspended during the period that the OIC is under consideration and is further suspended if the OIC is rejected by the IRS and the taxpayer appeals the rejection to the IRS Office of Appeals within 30 days from the date of the notice of rejection.
If the IRS accepts the taxpayer’s offer, the IRS expects that the taxpayer will have no further delinquencies and will fully comply with the tax laws. If the taxpayer does not abide by all the terms and conditions of the OIC, the IRS may determine that the OIC is in default. To avoid a default, the taxpayer must timely file all tax returns and timely pay all taxes for 5 years or until the offered amount is paid in full, whichever period is longer. When an OIC is declared to be in default, the agreement is no longer in effect and the IRS may then collect the amounts originally owed, plus interest and penalties.
If the IRS rejects an OIC, then the taxpayer will be notified by mail. The letter will explain the reason that the IRS rejected the offer and will provide detailed instructions on how the taxpayer may appeal the decision to the IRS Office of Appeals. The appeal must be made within 30 days from the date of the letter. In some cases, an OIC is returned to the taxpayer, rather than rejected, because the taxpayer has not submitted necessary information, has filed for bankruptcy, has failed to include a required application fee or nonrefundable payment with the offer, or has failed to file tax returns or pay current tax liabilities while the offer is under consideration. A return is different from a rejection because there is no right to appeal the IRS’s decision to return the offer.
Additional information about the offer in compromise program can be found on Form 656 (PDF), Offer in Compromise, and in Publication 594 (PDF), The IRS Collection Process, or by visiting the www.irs.gov Offers in Compromise web page.
SHOULD YOU HAVE ANY QUESTIONS CALL US AT FRESH START TAX. THE INFO FOR THIS BLOG WAS TAKEN FROM THE IRS
by steve | Mar 12, 2010 | Tax Help, Uncategorized
I am a former IRS agent in teaching instructor of the offer in compromise.
I am a true expert when it comes to tax debt settlement.
Call us today for free initial tax consultation.
Below you’ll find the new fresh start initiative by the Internal Revenue Service for the offer in compromise program
The Internal Revenue Service today announced several additional steps it is taking this tax season to help people having difficulties meeting their tax obligations because of unemployment or other financial problems.
The steps an expansion of efforts that began more than a year ago ?? include additional flexibility on offers in compromise for struggling taxpayers, a series of Saturday ?open houses? offering taxpayers extra opportunities to work out tax problems face to face with the IRS, special outreach with partner groups to unemployed taxpayers and the availability of more information on a special section of the IRS Web site.
Times are tough for many people, and the IRS wants to do everything it can to help people who have lost their job or face financial strain,? IRS Commissioner Doug Shulman said. We continue to make adjustments to key programs and expand ways for people to get help. We?re doing everything we can to help ease the burden on struggling taxpayers.?
New Flexibility for Offers in Compromise
For some taxpayers, an offer in compromise ?? an agreement between a taxpayer and the IRS that settles the taxpayers debt for less than the full amount owed ?? continues to be a viable option. IRS employees will now have additional flexibility when considering offers in compromise from taxpayers facing economic troubles, including the recently unemployed.
Specifically, IRS employees will be permitted to consider a taxpayers current income and potential for future income when negotiating an offer in compromise. Normally, the standard practice is to judge an offer amount on a taxpayers earnings in prior years. This new step provides greater flexibility when considering offers in compromise from the unemployed. The IRS may also require that a taxpayer entering into such an offer in compromise agree to pay more if the taxpayers financial situation improves significantly.
by steve | Mar 11, 2010 | Tax Help, Uncategorized
Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. If you have a choice, you can use the method that gives you the lowest tax.
Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than your standard deduction, you can usually benefit by itemizing.
The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2009, they are:
$5,700 for Single
$11,400 for Married Filing Jointly
$8,350 for Head of Household
$5,700 for Married Filing Separately
$11,400 for Qualifying Widow(er)
Some taxpayers have different standard deductions The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for state and local real estate taxes or state or local excise tax on a new vehicle, and whether you have a net disaster loss from a federally declared disaster. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.
Limited itemized deductions Your itemized deductions may be limited if your adjusted gross income is more than $166,800 or $83,400 if you are married filing separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses of personal use and income producing property, gambling losses and investment interest expenses.
Married Filing Separately When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and should itemize their deductions.
Some taxpayers are not eligible for the standard deduction They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.
Forms to use The standard deduction can be taken on Forms 1040, 1040A or 1040EZ. If you qualify for the higher standard deduction for real estate taxes, new motor vehicle taxes, or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.
These forms and instructions may be downloaded from the IRS.gov Web site or ordered by calling 800-TAX-FORM (800-829-3676).
Should have any questions about your personal situation, please feel free to call us. Check out our web site for details
by steve | Mar 8, 2010 | Tax Help, Uncategorized
What is an Offer In Compromise? It is a legal settlement with the IRS
* What You Must Know Before You File an Offer in Compromise
* Do You Qualify for an Offer in Compromise?
The Form 656-B, Offer in Compromise Booklet (PDF) contains information about filing an offer in compromise, worksheets, and all forms necessary to file an offer in compromise.
When submitting an offer in compromise (OIC), taxpayers must use the most current version of Form 656, Offer in Compromise (PDF), or Form 656-L, Offer in Compromise (Doubt as to Liability) (PDF), depending on the basis of the offer in compromise. Taxpayers should file Form 656 when there is doubt that the liability could be collected in full through a lump sum or an installment agreement and file Form 656-L when it is believed that the tax liability is incorrect. Taxpayers may not file offers concurrently claiming both that the tax liability is incorrect along with an inability to pay the liability.
In most cases, taxpayers must submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Businesses. Neither the Form 433-A nor Form 433-B is required when a taxpayer submits an OIC based solely as to doubt as to liability.
How Many Forms 656 and Application Fees are Required?
The general rule when determining how many offers and application fees are necessary is “one fee and form per entity”. The Form 656-B contains an Offer in Compromise Application Fee and Payments matrix to assist you in determining the number of Forms 656 and application fees required.
Examples:
A married couple owing the same joint income tax liability may file only one Form 656 listing the joint liability. One fee of $150 should be attached to the Form 656. A married couple opting to file separate offers to compromise the same joint liability may do so, but two $150 application fees will be required.
When a married couple owes a joint liability and one spouse also owes an individual (non-joint) liability, two OICs and two application fees are needed.
A divorced, separated or married couple living apart may still file one From 656 listing their joint liability and pay only one $150 fee as long as all the taxes owed are joint liabilities. Taxpayers in these situations that opt to file separate offers must pay a $150 application fee for each offer that is submitted for consideration.
Note: These examples assume that the taxpayers do not meet one of the exceptions for paying the application fee: the OIC is filed under doubt as to liability or the taxpayer has completed and attached Form 656-A to Form 656.
Keys to Success in the Offer in Compromise Program:
1.
Explore all collection options before submitting an offer in compromise
2.
Complete the “Is Your Offer in Compromise Processable?” checklist located in the Form 656-B, Offer in Compromise Booklet.
3.
Submit all required documentation
4.
Complete all items on Form 656, Offer in Compromise
5.
Include all required fees and payments
6.
Be current with all filing and paying requirements (estimated taxes and federal tax deposits) and remain current
7.
Respond promptly to all requests for additional information
8.
Complete all items on Form 433-A or Form 433-B
Where to File Form 656
Residents of: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Mississippi, Montana, Nevada, New Mexico, Oregon, Tennessee, Texas, Utah, Washington, Wisconsin or Wyoming:
If you are a wage earner, retiree, or a self-employed individual without employees; then mail Form 656 and all attachments to:
Memphis Internal Revenue Service
Center COIC Unit
PO Box 30803 AMC
Memphis, TN 38130-0804
If you are other than a wage earner, retiree, or self-employed individual without employees; then mail Form 656 and all attachments to:
Memphis Internal Revenue Service
Center COIC Unit
PO Box 30804, AMC
Memphis, TN 38130-0804
Residents of: Arkansas, Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Vermont, Virginia, West Virginia, or have a foreign address:
If you are a wage earner, retiree, or a self-employed individual without employees; then mail Form 656 and all attachments to:
Brookhaven Internal Revenue Service
Center COIC Unit
PO Box 9007
Holtsville, NY 11742-9007
If you are other than a wage earner, retiree, or a self-employed individual without employees; then mail form 656 and all attachments to:
Brookhaven Internal Revenue Service
Center COIC Unit
PO Box 9008
Holtsville, NY 11742-9008
Where to File Form 656-L (Doubt as to Liability)
Brookhaven Internal Revenue Service
COIC Unit
PO Box 9008
Holtsville, NY 11742-9008
In addition to accessing the Form 656 and Form 656-L online, you may obtain it by calling the IRS toll free number 1-800-829-3676 or by visiting your local IRS office.
All this information is taken from the IRS website and is vital information to have. For any questions please call our office.
by steve | Mar 5, 2010 | Tax Help, Uncategorized
The Child Tax Credit is a valuable credit that can significantly reduce your tax liability. Here are 10 important facts from the IRS about this credit and how it may benefit your family.
Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
Age Test – To qualify, a child must have been under age 17 ? age 16 or younger ? at the end of 2009.
Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.
Dependent Test – You must claim the child as a dependent on your federal tax return.
Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
Residence Test – The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
Additional Child tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
For more information, see IRS Publication 972, Child Tax Credit, available at the IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Should you have any question call us at Fresh Start Tax This tip is from the IRS Newswire site.
