7 Tips From the IRS For Business Owners

The IRS just released some important tips for business owners. Read the 7 tips below so you know all you need about business taxes.

Anyone starting a new business this summer should be aware of their federal tax responsibilities. Here are the top seven things the IRS wants you to know if you plan on opening a new business this year.

1. First, you must decide what type of business entity you are going to establish. The type your business takes will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
   
   
2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
   
   
3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
   
   
4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
   
   
5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
   
   
6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
   
   
7. Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.
   

Links:

• Starting A Business
• Operating A Business
• Closing A Business
• Publication 4591, Small Business Federal Tax Responsibilities (PDF 470.1K)
• Publication 334, Tax Guide for Small Business (PDF 286.2K)
• Order Publication 1066C, A Virtual Small Business Tax Workshop DVD

What Everyone Needs To Know About Filing S Corporation Taxes

If you are owner or part owner in a S corp, you need to file the Corporation's taxes on the Form 1120s. My best advice to you is, do not attempt to file this form yourself. You need a tax professional such as an Enrolled Agent or CPA. The rules for filing an 1120s are complex and require knowledge as to what expenses can and cannot be taken by an S corp.

When you incorporate your company, you must file for the S corp election by filing the IRS Form 2553. If you do not file this election timely, you will have to file the form 1120 and the company will pay taxes at the corporate tax rate. If you file the S corp election and it is approved by the IRS, you will be taxed at your individual tax rate.

Your 1120s is due on March 15th if you are a calendar year company and 2 1/2 months after the end of your fiscal year, if you are a fiscal year corporation. You may file for an extension just as you can for your personal income tax.

Once the 1120s is completed, each owner will receive a K-1 that they will file with their own 1040 return. Your percentage of the company's profit or loss depends on your percentage of ownership of the corporation.

You may have received a salary during the year, so you may have both a W2 which reflects your salary paid throughout the year and the K-1 which shows your portion of the corporate income or loss.(regardless of whether or not you actually received this money, it is still your portion of the income earned or the loss incurred)

S corps can take most reasonable business expenses, including the owners' reasonable salary. You will need your previous years tax return(if you have filed before) and your companies profit and loss statements as well as your balance sheet, for your tax preparer to be able to prepare your return. They will also need to know the date your company was incorporated.

Hopefully you consulted with a tax professional when you set your corporation up. You have to make decisions about your accounting method and many other business decisions. Being sure you make good decisions up front and knowing about record keeping requirements will make tax time go much more smoothly for both you and your tax preparer.

Do your homework and find a competent tax professional who can help you make good business decisions and help you file your tax returns correctly and on time.

The Secrets To Running a Cash Business

If your business is primarily cash, you need to take several precautions. You need to be very scrupulous in keeping records in case you are ever audited by the IRS. Here are some hints:

• Give each customer a receipt or invoice for payment.
• Attach your receipt/invoice to your deposit slip receipt you get from the bank.
• Keep your deposit slip with your receipt/invoice attached to your bank statement.
• Keep your receipts for all cash purchases you make as well and keep them with the bank statement too so both income and expense records are together.
• NEVER pay personal expenses out of your business bank account.
• If you take cash out before you make a deposit, be sure you account with a receipt for what you spent it on. Better yet, make the deposit and then write a check for the expense.
  

Remember, if you cannot prove an expense, you may not be allowed to claim it on your tax return. There are some exceptions like taxi rides, tolls...etc. For those, just list them on a piece of paper and attach to the bank statement.

If you are audited and have your records well organized and your income and expenses substantiated, you should sail through an audit with flying colors. If not, your expenses you cannot prove may be disallowed and than can make assumptions about your income from prior year that may not be close to what you are making now. Keeping good records protects your hard earned money and your business.

If you have questions and need assistance contact a tax professional such as an Enrolled Agent or a CPA.

Top Ten Facts About Dependents

Many taxpayers have questions about who qualifies as a dependent for tax purposes. Here are 10 facts to help you out. Your dependent:

1. Can never be your spouse
2. Must be a U.S. citizen
3. Cannot claim the exemption on their tax return
4. Must meet relationship test
5. Must meet the age test if your child(under 19 or under 24 if full time student unless disabled)
6. Must meet the support test
7. Is not being claimed on another taxpayers tax return
8. Must meet the residency test( lived with you for more than half the year except for temporary absences--like away at college)
9. Meets special test if child can be claimed by more than one parent
10. Meets the income test
For more details and examples of situations see IRS Publication 501.

The Secret To Penalty Abatement With the IRS

Owe the IRS? Have penalties and interest accrued and seriously increased the amount you owe? You can never abate interest. You can, in some cases, have the penalties abated. Here are a couple of options.
1. If you only owe for one or two years you can ask for "first time penalty abatement" on the first year only.
2. If you owe for many years, you will need to write a letter to the IRS requesting that they abate the penalties due to reasonable cause and not willful neglect. You will need to provide documents that substantiate what went wrong and why you did not file and or pay your taxes. It will need to be a situation that affected your entire life, not just your taxes.

I forgot or I was busy and didn't have time are not considered reasonable cause. Write up a compelling argument, provide documentation to show why your taxes and your entire life fell apart.

If you need assistance preparing your letter contact a tax professional such as an Enrolled Agent.

Who Else Wants to Understand The IRS Form 940?

If you are an small business owner with payroll, you are probably are familiar with the IRS form 941. That return you have to file quarterly. Many business owners are not as familiar with the Form 940. This is the form for reporting your Federal Unemployment Taxes. This form is filed annually, not quarterly, although you are required to make the 940 deposits quarterly if the balance for that quarter is over $500. Use the same 8109 form you use to deposit your 941 taxes just fill in the oval for 940.

If the amount of your FUTA tax is under $500 you can wait until the next quarter's deposit is due and add the previous quarters balance to the current quarter. When computing your tax remember that only the first $7000 in wages per employee is subject to the FUTA tax.

You compute the tax due by multiplying the rate times the total payroll for that quarter that is subject to the tax. The rate is normally 6.2% but is reduced by the State Unemployment Tax you pay. If you are eligible for the full credit, then your rate is only .8%.

Example:
Payroll for 1st Quarter 2009
Employee A $5000
Employee B $8000
All $5000 of employee A's wages are subject to FUTA tax
only $7000 of employee B's wages are subject so the total amount subject to the tax is $12,000. If you qualify for the full state credit, multiply
12,000 x .008 = $96. Your balance is under $500, so no balance for the quarter is due. (Note: the 7,000 is the max for the year not the quarter, so for any employee with wages over 7,000 in the 1st quarter, none of their wages for the other 3 quarters will be subject to the tax)

See the Instructions for form 940 to learn how to compute how much, if any of the state credit you are eligible for. You are required to have paid your state unemployment tax by the due date of the 940 to be eligible for the credit. This return is usually due the 2nd of Feb the following year. If your total balance for the year is $500 or less, you can send the payment in with your 940 return.

If you need additional help in completing this form or computing your FUTA taxes, contact a tax professional.

Help! What If I Can't Make My IRS Payment?

If you are one of thousands of taxpayers who are in a payment plan with the IRS, but due to current economic conditions cannot make your payment, you have options. If you have lost your job and your entire financial situation has changed, you need to contact the IRS and be prepared to lay out your new situation. If you expenses have not changed and your income is all that has changed, you may just need proof (like a termination letter) you no longer have a job.

If your expenses have changed as well, you may need to provide proof of those changes as well. When you talk to the IRS, only say what has happened and answer honestly and completely any questions they may ask. Do not volunteer information, except to briefly explain your situation. Don't get chatty, even if the person you talk is friendly and personable, remember, they work for the IRS. You could make one simple statement that could cause you problems.

If your liability is substantial and you need assistance, contact an Enrolled Agent, who can represent you before the IRS. What ever you do, do not ignore your situation. If you default you payment plan, the IRS can levy your bank accounts, retirement accounts and file a lien even if your tax liability is low. Call either the IRS or an Enrolled Agent before the IRS makes a bad financial situation even worse.

If You Ingore Them Will They Go Away?

If you have tax debt and like many tax payers you have decided to ignore them and hope they will go away. You seriously needed to reconsider. If you have received Certified Mail from the IRS and have considered not signing for it, think again. If you ignore the IRS, you do so at your own peril.

These notices from the IRS are sent to give you a chance to take care of your tax debt, before the IRS starting taking it from you.....on their terms. As long as you respond before the notice cycle ends, you have the options as to how you repay your liability. Once they start taking it out of your checking, savings and wages, you have lost that control.

Sign for those notices and either contact the IRS yourself or contact an Enrolled Agent to represent you before the IRS. Act before the options are taken out of your hands and your financial situations worsens.

Do I Need A Tax Attorney?

If you have tax debt, you may be wondering if you need to hire a tax attorney. If you need to go to tax court to resolve you tax problems, then yes, only an attorney can represent you. However, if you like most taxpayers with tax debt, you just need help resolving your tax debt with the IRS, you need an Enrolled Agent. An Enrolled Agent is a tax professional who has passed a set of exams administered by the IRS. An Enrolled Agent can represent you before the IRS and help you obtain the best possible resolution of your tax debt.

Enrolled Agents are familiar with the IRS policies and procedures and can assist those with tax debt in situations where a tax attorney or CPA is not required. Effectur is a company that employs Enrolled Agents (s0me of our EAs are former IRS employees). Use the link above to the Effectur site and get answers to your tax debt questions and see how to contact a tax consultant to help you on your way to resolving your tax debt.

Do You Know Your Appeal Rights?

Did you know that the IRS makes a determination that you disagree with, you may have Appeal rights? If you disagree with the final determination from an audit, a levy or lien you received, you have Appeal rights. You usually have a specific amount of time, often 30 days to file for an Appeal. The notice you received should tell you how long you have to file and how you need to do so. Here are some important points you need to know:

• Be prepared to show documentation to support your objection.
• An Appeals conference is an informal meeting. You can represent your self or have a CPA or Enrolled Agent to represent you.
• The conference can be held over the phone or in person.
• If you still disagree with the findings of the Appeals Officer, you can contest this ruling in Tax Court--this will require an attorney to represent you.

Publication 5 at irs.gov will give you more details. If you file and Appeal that is just based on your not liking the results, you Appeal will be denied. You need to have documentation to show you have reasonable cause to request a different determination. For instance, your audit showed you owe more taxes than you believe you owe. You found documentation for expenses that were not taken into consideration--that is a valid reason to Appeal.

If you need either representation for an Appeal or just someone to help you resolve you tax problems, contact an Enrolled Agent.

What You Need to Know About Choosing a Tax Preparer?

If you haven't filed you taxes or have prior year returns you still have not filed, you may want a professional to help you prepare your returns. Before you choose, you need to consider the following:

• Beware of anyone promising a refund before they have even reviewed your financial information.
• Be sure you carefully review the return once it is prepared. Your preparer must sign it too.
• Never sign a blank return and never sign it in pencil.
• Find out how long they have been doing tax returns.
• Are they an Enrolled Agent or CPA?

If the person that you hire is an Enrolled Agent or CPA, they were required to pass an exam to demonstrate their knowledge of taxes. Most tax preparers have no requirements unless they are employed by a reputable company. Be sure yours is qualified.

Be aware the IRS hold you accountable for the accuracy of your return, even if you have someone else prepare it. Be sure you at least look over your return to be sure the Social Security Numbers are all correct and all income number were accurately reported. Also be sure you were not given any deductions you were not entitled too.

Unscrupulous prepares will give clients deductions they are not entitled to to get them bigger refunds and get a larger fee. It is not legal or ethical to do this. You are the one who will be penalized if you took deductions you should not have. You will pay not only additional tax, but accuracy penalties and failure to pay penalties.

Choose your preparer carefully, like you would any other professional. Check their credentials and ask others who they would recommend. A good tax preparer may save you money, a poor one will likely cost you money.

How Can I Pay the IRS Less Than I Owe?

That questions would be number 1 on my top ten list of frequently asked questions. The short answer is that is possible in some cases. You may hear a lot about people being able to pay "pennies on the dollar". I am here to tell you that very rarely happens.

If you are elderly, living on a modest fixed income and have basically no assets. Then you may qualify. If you are young make a decent amount of money and have any real estate or other valuable assets, you probably don't qualify.

Here are several ways you may be able to pay the IRS less that the total you owe:

• Offer In Compromise
• Partial Pay Installment Agreement
• Currently Not Collectible
  
• Penalty Abatement

Each of the options only applies in very specific cases. As indicated above, the Offer is very hard to qualify for. A better and more likely option is one of the other choices. A Partial Pay Installment Agreement means after looking thoroughly into your financial situation the IRS determine the amount you are able to pay each month will not full pay your liability before the Statute to collect the taxes expires.

Currently Not-Collectible is possible if you current expenses(as allowed by the IRS) exceed your income. Even if you own your home, if your credit or you income is such that you cannot borrow against the equity to repay your your taxes, you may qualify for this option. The IRS will monitor you income every year or two looking for increases in income. If your ability to pay does not change, or even if it changes to allow some payment, the statute to collect may expire before you have paid all you owe.

The last option is for those who have a legitimate reason for not filing and or paying their taxes. They will not abate the tax itself nor the interest, but may abate the penalties if you can show that your lack of filing and or paying is not due to willful neglect, but is due to reasonable cause.

If you need assistance in implementing any of these options, you may need an Enrolled Agent to assist you.

What If I Forgot To File My Tax Return?

If you did not file you tax return by the April 15th deadline you need to file it as soon as possible. Although you will pay a Failure to File Penalty, if you file less than 60 days after the due date, you will pay 5% of the unpaid taxes per month or part of a month the return is not filed. If you file it more than 60 days after it was due, you will pay a minimum of $135 or 100% of the unpaid tax, whichever is smaller.

The Failure to File Penalty is more than the Failure to Pay Penalty. The Failure to Pay Penalty is 1/2 of 1% of the unpaid balance for each month the taxes are unpaid. So even if you cannot pay, you should file as soon as possible.

If both penalties apply, the Failure to File Penalty is reduced by the amount of the Failure to Pay Penalty.

If you have reasonable cause that you can substantiate is not due to willful neglect, then you may be able to get the Failure to File Penalty abated. You need to write a letter to the IRS explaining why you could not file by the deadline. I forgot or I didn't know they were due, are not acceptable reasons. A death in the family or a serious illness or other major life altering event, may be accepted.

For more information on Penalties see the IRS website. If you need assistance in filing your returns or have prior year returns that have not been filed, you may need to contact an Enrolled Agent or other tax professional.

If You Are Working, You Are Getting Your 2009 Stimulus Payment

There have been a lot of questions about the 2009 stimulus payment. The good news is, if you are working, you are already getting it! Beginning April 1, all employer had to adjust the withholding tables down to the number based on the stimulus bill passed by Congress.

You should be seeing around $8 per pay check for singles and around $15 for couples. The great part is, unlike the 2008 Stimulus plan, your teenager(over 17) or college student if working, will get the benefit of this plan. For 08, if you were over 17, your parents did not get the extra $300 and if you were claimed on their return, you did not get it either.

For 2009, everyone who works gets the benefit. If you are on Social Security, you will be sent a check for $250.

To read an article on all the aspects of the Obama Stimulus Plan visit the MSN Website.

Things The IRS Will Not Tell You About Tax Penalties

If you owe back taxes, you have most certainly accrued penalties and interest. While the IRS never abates interest, unless they have made an error, they do on occasion abate penalties. When you call, they will not tell you this is even a possibility.

If you just owe for one year and you have filed your prior years on time and the penalties are not too high (they wont give you the ceiling), you can ask to have the penalties abated and they may do so.

Even if you owe for several years, if you can show reasonable cause, they may abate the penalties. Reasonable has to be something major like a death in the family, drug or alcohol addition, other other major life altering disaster.

The key is, you have to be able to show that this event affected your entire life, not just whether or not you filed and/or paid your taxes. If you lost your job, your family or had a tragedy that prevented you from doing every day tasks, you need to write a letter to the IRS with a description of what occurred and submit documents to substantiate this.

If you need assistance, contact an Enrolled Agent or other tax professional to help you write the letter.

Things the IRS May Not Tell You About Installment Agreements

If you have tax debt, how you resolve it with the IRS depends on how much you owe. When you call the IRS yourself, they may, or may not advise you as to your options in setting up an Installment Agreement. They will definitely ask you the following:

• Can you full pay..now...in 30 or 60 days?
  
• Can you borrow from friends or family
• Can you pay off your balance with a credit card?
• Can defer payment on other bills to pay your taxes?

What they may not tell you, is if you balance is under $10,000 you are guaranteed an Installment Agreement and do not have to provide financial information. They may require you to tell them you bank name and your employer, so they have levy sources should you not fulfill your agreement.

If you owe $25,000 or less, you will probably qualify for what the IRS calls a Streamline Installment Agreement. Again you are not required to provide you financial information for this payment plan either. You have up to 5 years to pay off your balance. The kicker comes if your balances are old and the statutes are close to expiring. This will cause your payment amount to increase so that all balances are paid before the statutes expire.

If you are unable to make the payment that they say it would take for a Streamline or you owe over 25,000, or are unable to make any payment at all, you will be required to provide a financial statement. You will have to list all your assets, income and expenses. If you have equity in your home they will require you to try to borrow against it. If you have a 401K or IRA they will most likely expect you to liquidate.

You do have the right to have someone represent you before the IRS, if you find the rules to confusing and need some help. An Enrolled Agent can help you and is much less expensive than hiring a tax attorney. An Enrolled Agent can contact the IRS on your behalf and negotiate your Installment Agreement.

What Everybody Ought To Know About IRS Seizures

If you have tax debt, you may be concerned about which of you assets the IRS could potentially seize. The basic answer is most of them---up to the amount of your tax debt.

Can they seize your Social Security? Up to 15% of it they can. If you have State tax debt as well, they can take a lot more---depending on the state.

Can they seize your bank account and 401k/IRA? You bet they can. No matter what your 401K company may tell you, even if you cannot touch your retirement account, the IRS can.

Can they seize you home? Yes, but that is unlikely unless your liability is very large, you have been totally non-cooperative and do not have a family. If you have a family, the IRS rarely seizes the families home. They can require that you borrow against the equity in you home, but it is bad PR to throw a family out of its house, so it is rarely done.

How do your prevent these seizure from happening? Do not ignore the notices the IRS sends you! If you are unsure of how to negotiate with the IRS then you may need representation. You do not need a tax attorney, unless you are going to tax court. If you simply need representation before the IRS, you need an Enrolled Agent to represent you.

Having someone in your corner who has experience in dealing with the IRS and knows the rules and your taxpayer rights, can save you a lot of worry and find the best possible resolution for you tax situation. Follow the link above to find more details on what an Enrolled Agent does and if you have questions, there is a link on the site for either a live chat or the ability to leave a message and someone will contact you with an answer.

Little Known Options For Paying Your Taxes

Read below important info from the IRS on the different ways you can pay your taxes.

WASHINGTON — The Internal Revenue Service today reminded taxpayers to file their federal tax returns and pay any taxes they owe by the April 15 deadline.

Aware that the economic downturn has affected many people, the agency urged taxpayers in difficult financial situations to file a tax return, pay what they can and work with the IRS to establish a payment plan that will keep them compliant.

Filing and Paying on Time Saves Money

The IRS cautioned that there is a failure-to-file penalty for taxpayers who don’t file their tax returns by April 15 and who owe taxes. Filing by the deadline allows taxpayers to avoid this penalty, even if they can’t pay all or some of their taxes by the deadline. Taxpayers who can’t meet the filing deadline can request an extension of time to file. However, an extension of time to file is not an extension of time to pay.

Taxpayers who can’t pay the full amount would still benefit from filing their return and paying as much as they can by April 15. Interest and failure-to-pay penalties are due on any unpaid balance and increase the amount that the taxpayer owes.

Members of the military and some others serving in combat zones, or in support, can wait until after April 15 to file and pay. As a general rule, those eligible get the extra time penalty-free and interest-free without having to ask for it. Normally, the filing and payment deadline is postponed until 180 days after the service member leaves the combat zone.

Electronic Options

IRS offers various electronic payment options to taxpayers to make it as easy as possible to make a full or partial payment with their return.

Taxpayers can make payments online, by phone using a credit or debit card, or through the Electronic Federal Tax Payment System. Taxpayers who e-file their return may use the electronic funds withdrawal option for submitting an electronic payment. They can e-file before April 15 but schedule their payment for withdrawal on April 15.

Information on these options, including any fees involved, may be found on this Web site, on the Electronic Payment Options Home Page.

Some taxpayers who itemize may now deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2 percent limit on Form 1040, Schedule A.

Taxpayers may also pay any taxes owed by check made out to the “United States Treasury” using Form 1040-V, Payment Voucher, which must be included along with the payment and tax return. Taxpayers who have already submitted their tax return, but still need to pay all or some of their taxes, may mail the check to the IRS with Form 1040-V.

Installment Agreements and Online Applications

Taxpayers who find they can’t make a full payment by the April 15 deadline may consider applying for an installment agreement.

An installment agreement allows taxpayers to pay any remaining balance in monthly installments. Taxpayers who owe $25,000 or less may apply for a payment plan electronically, using the Online Payment Agreement application. Or they may attach Form 9465, Installment Agreement Request, to the front of their tax return. Taxpayers must show the amount of their proposed monthly payment and the date they wish to make their payment each month. The IRS charges $105 for setting up the agreement or $52 if the payments are deducted directly from the taxpayer’s bank account ($43 for qualified lower-income taxpayers).

The IRS will automatically give taxpayers the low income installment agreement fee if they qualify. The taxpayer does not have to request it. Taxpayers are required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month after the due date that the tax is not paid. A taxpayer who does not file the return by the due date — including extensions — may have to pay a failure-to-file penalty.

For more information about filing and paying taxes, visit IRS.gov and choose 1040 Central or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. Taxpayers can download forms and publications from IRS.gov or request a free copy by calling toll free 800-TAX-FORM (800-829-3676).

Related Items:

• IR-2009-37, Credit and Debit Card Fees Related to Tax Payment Are Deductible
• IR-2009-36, IRS Urges Taxpayers To e-file Extension Requests by April 15 Filing Deadline
  

Who Else Wants to Avoid Estimated Tax Penalties?

You probably know April 15 is the date your tax return is due, but did you also know it is the date your first 2009 Estimated Tax Payment (ETP) is due. If you are self employed, then you need to pay 4 equal estimated tax payments based on your taxes for 2008. Here are 3 ways to be sure you do not get hit with the ETP penalty.

• Your total payments are less than $1000
• If you have paid at least 90% of the taxes due or
  
• 100% of your prior year taxes (whichever is smaller)

Although normally you need to make 4 equal payments, but if you make unequal payments because your earnings are unequal. you can annualize your income and file Form 2210 to see if you owe a penalty. This may avoid or reduce the penalties.

Pay your ETP by each of the following dates:

• April 15
• June 15
• September 15
• January 15 (of the following year)

Some people make the mistake of thinking they are due after the end of the quarter like payroll taxes, but that is not true, they are due as listed above. Be sure your payments are marked as an ETP and what year you are paying for. You can print coupons to mail in with your checks on www.irs.gov.

You may be able to get the penalties waived if your failure to pay was due to natural disater or other casualty or if you retired (after turning 62) or became disable during the year and your lack of paying was not due to wilful neglect.

If you have additional questions see IRS Publication 505 or contact a tax professional.

What Everybody Ought to Know About Death and Taxes

If you are executor of the estate of someone who has died, you may wonder what happens to their unpaid tax debt. Many think the tax debt dies with the person. This is not true. If the decedent has assets, then the IRS will require that the estate pay out the surviving equity in the taxpayer’s assets as defined by local property laws.

The executor of the estate must apply to the IRS for a Employer ID Number and set up estate checking account in the decedent's name. Follow this link to apply for an EIN for the estate. Don't be confused by the name Employer Identification Number. This is the correct ID number.

You will have to deposit the proceeds from the sale of all assets the decedent owned into the checking account set up for the estate which is tied to the EIN you received. Should the sale of all assets from the decedent not be sufficient to cover the tax liability, the remainder of the liability is written off.

This is often a complicated matter and you may need the services of an attorney and a tax professional to assist you with handling the estate. If you have additional questions about your responsibilities for the estate you should review IRS Publication 559.

What Everybody Ought To Know About Payroll Taxes

One of the most common errors small business owners make is neglecting to pay their payroll taxes. It is important the you as the business owner know when you payroll taxes need to be deposited and verify that they are being made. Even if you have a bookkeeper or accountant that you trust, the responsibility is ultimately yours.

The IRS website or your accountant can help you determine how often your payroll taxes must be deposited. Whether they are monthly or biweekly depends on the amount of your payroll. Many business owners make the mistake of paying other bills instead of paying payroll taxes. This is always a mistake, as basically, this is stealing. You are taking money from your employees (that should go to the IRS) and using it to pay your bills.

The IRS vigorously pursues employers who do not pay their payroll taxes. They will even close down your business if you cannot meet your payroll tax requirements.

Save your business money (in penalties and interest you would have to pay) and save yourself the hassles of the IRS potentially assessing a portion of that payroll liability to you personally. Be sure your payroll taxes are paid on time and your Form 941 and 940s are filed on time.

If you are behind in paying your payroll taxes and need someone to help you on the road to compliance, contact an Enrolled Agent.

Who Else Wants To Avoid A Tax Levy?

If you are one of thousands of tax payers who owe back taxes, you may be concerned about how to avoid a tax levy. The answer is simple, but few heed are willing to heed this advice.

• Do Not Ignore Notices You Receive From The IRS!

Many tax payers tend to ignore these if they feel they cannot pay the taxes due and hope the IRS will stop sending the letters. They even refuse to sign for letters that are sent certified mail, thinking that what they don't know won't hurt them. Wrong.

Yes, the letters may stop coming, but what will start coming instead are wage levies, bank levies and if you are self employed, levies to your clients or those who rent properties you own.

The simple way to prevent this from happening is to either call the IRS yourself or contact an Enrolled Agent. If you decide to call yourself, you need to be sure you are aware of all your rights so read up on the collection process and tax payer rights on the IRS website.

If you decide to call an Enrolled Agent, your representative will help you understand what you need to do and how much time you have to respond to prevent a levy from being issued. They will need to know what letters you have received and when those letters are dated.

It really is easy to stop the levies from happening, by being willing to work on taking care of your tax liability now. You may want to set up an Installment Agreement and pay over time, or you may find you can borrow to repay the liability in full. You may even find you cannot afford to make a payment at all and submit your financial information to be considered Currently Non Collectible. An Enrolled Agent can help you wade through the process and find the best option for you.

The Secret to Resolving Your Tax Debt Without a Tax Attorney

If you have tax debt with the IRS, you only need a tax attorney if you have to go to US Tax Court. If you simply need representation before the IRS, you need an Enrolled Agent. An Enrolled Agent has been recognized, by the IRS after passing rigorous exams administered by the IRS, as qualified to represent tax payers.

Once you have signed a limited Power of Attorney form, the Enrolled Agent will be able to talk to the IRS on your behalf. Your tax situation may be very complicated and having someone in your corner who is familiar with the IRS' processes and procedures can insure you find the best option for your particular situation.

A thorough review of your current financial situation will help the Enrolled Agent understand what options will or will not work for you. Many people hear the ads for "pennies on the dollar" resolution. An Enrolled Agent can help you determine if you qualify for this option (few tax payers actually qualify). Even if you do not qualify for that resolution option, an Enrolled Agent will find the best option for you.

Effectur is a company that employs Enrolled Agents to represent their clients before the IRS. While resolving your tax debt is not inexpensive, hiring an Enrolled Agent is certainly a less expensive alternative to a tax attorney and will ensure you have the inside track on what options are available for your situation.

Click on the Effectur icon to the left of this blog to get answers to your questions and find out how we can help provide you with peace of mind.

Form 940

If you have employees, then you are required to file an annual 940 form with the IRS. Some people confuse this form the the 941 form which you have to file by the end of the month following the end of each quarter.

From 940 is for your Federal Unemployment taxes. The amount you pay is usually reduced by the amount of State Unemployment taxes you pay each quarter to your state. You do not get to take this credit, however, if you have not paid those State Unemployment taxes by the time you file your 940.

Although Form 940 is only filed once a year (by Feb 28th), you do have to deposit the taxes quarterly. You must file them by the end of the month following then end of the quarter, if your balance do is $100 or more. If the balance is less than 100 you can wait until the next quarter in which the cumulative balance is 100.

Be sure when you do your calculations you only need to count the first 7,000 of wages for each person. You may have payroll software that does the calculations for you, but if you are a small business and do not, I always kept a worksheet showing my figures for each quarter.

Be sure when you complete your deposit Form 8109 to make your deposit, that you fill in the 940 oval so this amount will not go towards your 941 taxes. Also be sure you fill in the oval for the correct quarter.

If you do not make your payments or file your form timely, you will incur penalties and interest. If you need assistance in completing you payroll tax forms, contact an Enrolled Agent or other tax professional.

Tax Penalties

If you don't file and or pay your taxes by the 4/15 deadline, you will incur penalties and have to pay interest on the unpaid balances. You may not be aware just how expensive that can be.

The failure to file penalty is higher than the failure to pay penalty. The penalty for failure to file is 5% per month or part of a month for each month that the return is late.(not to exceed 25% of the unpaid taxes. If you file more than 60 days after the due date(or the extended due date), then the penalty is smaller of $135 or 100% of the tax due.

You may be eligible to have the penalties abated, if you can provide that you have reasonable cause(in the eyes of the IRS) for filing your return late. Usually this is for traumatic or tragic events that prevented you from being able to file on time. You must submit a letter to the IRS requesting this abatement and explaining and substantiating why you did not file on time.

The failure to pay penalty is 1/2 of 1% for each month or part of a month that the taxes remain unpaid. If you have both failure to file an failure to pay penalties, then the failure to file penalty is reduced by the amount of the failure to pay penalty. The minimum penalty stated above, still applies.

If you have an extension and did not full pay your taxes by the due date, as long as you paid at least 90% of the total tax due, you will not have a failure to pay penalty.

If you need help with your taxes, contact an Enrolled Agent or other tax professional.

How To Avoid Stress on April 15th

1. Do not wait until the last minute to begin your return. You may find you are missing something and not be able to complete it by the deadline if you don't know ahead of time. At the very least, be sure you have all your documents together and all the forms you are going to need, unless you are planning to efile.

2. Efile your return and use direct deposit to get your refund. Worried about giving the IRS your checking account information? Don't be, they already know it! If you are getting interest on your bank account, they may get a 1099-INT on your account for interest you were paid, plus you used your Soc Sec Number to set it up, so the IRS can find it.

3. If you think you should not file since you don't have the money to pay all you owe, the IRS will work with you to set up a payment plan. File a form 9465(available at IRS.gov) with your return and tell the IRS how much you feel you can pay per month. For them to accept it you will need to be able to pay it off in 5 years. If the amount you over is over 25,000, they will probably request additional financial information. Most importantly FILE YOUR RETURN. If you don't you will incur both failure to file and failure to pay penalties.

4. Have qualified tax preparer prepare your return or visit irs.gov to get the answers to questions you have if you feel you can complete it yourself. Remember, errors can be costly, so be sure you know what you are doing or find a qualified tax preparer such as an Enrolled Agent to prepare your returns.

5. File and extension if you know you will note be able to file. Go to irs.gov and complete the form 4868 which will give you another 6 months to file your return. Keep in mind this is an extension to file not an extension to pay. Filing an extension with what you feel you will owe, will save you in failure to pay penalties. If you cannot pay anything, at least filing the extension can save you in failure to file penalties.

Save yourself stress and headaches by doing your taxes before the deadline.

To Itemize or Not to Itemize

If you are wondering whether or not you should itemize your deduction use the info published by the IRS to help you determine which option is right for you.

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 the 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 2008, they are:

Single $5,450
Married Filing Jointly $10,900
Head of Household $8,000
Married Filing Separately $5,450

• Some taxpayers have different standard deductions. The standard deduction amount depends on your filing status, whether you are 65 or older or blind, whether an exemption can be claimed for you by another taxpayer, whether you plan to claim the additional standard deduction for state and local real estate taxes, and whether you have a net disaster loss from a federally declared disaster. If any of these apply, you must use the Standard Deduction Worksheet in the Form 1040EZ, 1040A or 1040 instructions.
• Limited itemized deductions. Your itemized deductions may be limited if your adjusted gross income is more than $159,950 ($79,975 if you are married filing separately). This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, investment interest and certain qualified cash contributions for relief efforts in a Midwestern disaster area.
• 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.
• Forms to use. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

Payroll Taxes

One of the most frequent mistakes I see small businesses make is with their payroll taxes. They either do not now the rules about depositing them or they turn the responsibility over to someone else and assume it is being done correctly.

Daily, I see cases where a client trusted a bookkeeper or accountant to make their payroll tax deposits and then find out they were not being made. You as the small business owner are responsible for being sure these tax deposits are being made and will be held responsible by the IRS if they are not. You are the one who will be penalized. Anyone who has signature authority on the business checking account can be held liable.

If you do not know how frequently your deposits need to be made or your 941s need to be filed, the IRS website can guide you. Many small businesses make theirs on the 15th of the month for the previous months payroll taxes.

Remember you are taking part of this tax out of your employees paycheck and holding this money in trust for the IRS. Choosing to pay another business expense rather than your payroll taxes can cost you not only penalties and interest, but your business itself. The IRS can close your business down and seize it's assets if you do not pay your payroll taxes.

If you are behind in paying your payroll taxes, call the IRS or an Enrolled Agent to represent you before the IRS and set up a payment plan. The longer you wait, the more it will cost you. The liability can even be assessed to you personally, ruin your credit and put a lien on your home.

IRS Certified Letters

So you got a note from the postman on your door that says you have a letter you have to sign for at the post office. The note says the sender is the IRS. What do you do? You may be tempted to ignore the notice and not go sign for the letter. Ignorance is bliss, right?

WRONG. In this case not knowing what this certified letter says keeps you from knowing the time frame in which the IRS is likely to put a lien on your house, levy your wages and clean out you bank accounts!

One common letter sent by the IRS certified is the CP504. This letter tells you that you have 10 days to respond and is your notice that the IRS can put a lien on your house.

Another common letter sent certified is the L1058 or Final Notice which informs you that you have 30 days before the IRS can levy your wages and bank account.

If you do not pick up these letters and sign for them, the post office will send them bank to the IRS unclaimed and basically you have announced to the IRS that you are unwilling to face or take care of your tax debt.

Moving without notifying the IRS does not stop the clock from ticking on these notices. They just have to send them to your last known address. If you move and do not notify the IRS of your new address and the notices go out, you will still have liens and levies even though you never actually received the notices. It is your responsibility to keep the IRS up to date on your address.

If you receive one of the notices and need someone to guide you through the process, contact an Enrolled Agent.

IRS Collection Statute of Limitations

If you are wondering if the IRS has an unlimited amount of time to collect back taxes, the answer is no. The IRS has until 10 years after the date the tax is assessed(usually when the return in filed, or an audit is completed) to collect the tax owed. If the taxes are not paid within that time frame(with some exceptions) then the taxes are written off.

Exceptions that can extend the statues are:

• Filing bankruptcy- extends through the bankruptcy process and for 6 months after the bankruptcy is discharged.
  
• Filing and Offer in Compromise and for 30 days after rejection.
• While an Appeal is pending.
• When the IRS requests taxpayer to sign a waiver to extend the statue to prevent certain types of enforced collection when a statue is about to expire.

Be aware that the closer you get to a statute expiration date, the more aggressive the IRS will become in its attempt to collect back taxes. Your best bet to avoid coming close to the statute by setting up a payment plan.
However, if you are in a financial situation where you cannot make a payment, then the possibility exists that the statute could expire during the time in which you are in a Non Collectible Status. In that case, you will not have to pay the taxes due.

If you need assistance in handling your tax debt contact an Enrolled Agent or other tax professional.

IRS Allowances

If you have talked to the IRS lately about your tax debt and you had to provide financial information, you were probably told about the IRS standard allowances for expenses. Follow the link to find out what these standards are. There are standard amounts for food and clothing, housing, transportation and health care expenses.

One important thing to remember as long as you do not have tax debt, what your standard of living is, is up to you. When you owe the IRS tax debt however, your allowable living standards are theirs to determine. While this may not seem fair, it is within their rights to make that determination.

There are instances in which they will allow your actual expenses rather than holding you to the standards. If you can full pay your liability in 5 years with the payment amount determine using your actual expenses, they may allow you these expenses. If not, they will hold you to the standards.

If you are attempting to qualify for the currently non collectible status, they will hold you to those standards as well. They will not allow you not make any payments on your taxes when your standard of living is above the national standards allowable.

Negotiating with the IRS on your financial data is complex and unless you are aware of the rules, you may end up paying a higher monthly payment than necessary. Contact an Enrolled Agent to work on your behalf. Or if you have questions, click on the tab to the left of this blog to have a tax consultant answer your questions about how an Enrolled Agent can help.

Substitute For Return

If you have received a notice from the IRS telling you they have done a Substitute For Return (SFR), you may not know what to do next. First, you need to look at the filing status (usually either single or married filing separately). They choose the status that has the highest taxes. Then look at the deductions(probably none).

Once you look at how they have computed your taxes, chances are you will see exemptions and deductions they did not allow. Now what you need to do is file your original return. Just because they have filed the return for you, does not mean you cannot file it yourself with the correct filing status and deductions.

Unless you are a single wage earner with no deductions, you can probably lower your taxes by filing a return. If you have problems finding someone who can help you with past year returns, Effectur can help. We specialize in both resolution and prior year tax return preparation.

You will need to let the IRS know that you are going to file these returns and request a hold put on your account to allow you some time to prepare them and have them post. It can take weeks for the returns to post over your SFR. Be sure to keep up with any call back deadlines you are given or you can face levies on your wages and bank account.

They may require you to begin a payment plan before the returns post so you may want to contact an Enrolled Agent to help you through the process. One of the tax consultants at Effectur can help you get your returns prepared and work towards the best resolution for your situation.

We are in your corner and will help you know what your rights are and what the options are for resolution. If you have questions, click on the Effectur button to the left of this blog for more details.

Tax Credits

Listed below are some important tax credits you may be eligible for:

• First Time Homebuyers Credit($7500 on homes bought from 4/9/08-6/30/09-complete Form 5405)
• Earned Income Credit(Available for low income families both with and without children-visit the IRS website and go to the EITC Assistant to see if you qualify)
• Child Tax Credit(Available on dependent children who are under the age of 17 at the end of the tax year—up to $1000 credit)
• Child and Dependent Care Credit(Available for both children and adults who are unable to care for themselves—must have service providers Tax ID to be able to claim on Form 2441)
• Education Credits(both Hope(for only 1^st 2 years of college) and Lifetime Learning Credit—complete Form 8863)
• Savers Credit (available for low to moderate income families for saving for retirement—complete Form 8880)
• Recovery Rebate Credit(for those who may not have qualified when the credit was issued, but do now—ie baby born in 2008, you were claimed on your parents return in 2007, but are not being claimed in 2008)
• Foreign Tax Credit(take on line 47 on your 1040)
• Credit for Elderly or Disabled(complete Schedule R)
• Adoption Credit(complete Form 8839)
• Residential energy efficient property credit(claim on Form 5695)
• Alternative motor vehicle (including hybrids) credit(claim on Form 8910)

For more details on these credits visit the IRS website or contact and Enrolled Agent or other tax professional.

Innocent Spouse Relief

If your former spouse had tax liability that you are being held responsible for, you may be eligible for Innocent Spouse Relief. First see if you meet the following criteria:

• The taxes owed are your spouse's or ex-spouse's.
• You are no longer married to that spouse.
• You thought your spouse would pay the taxes on the original return.
• You didn't know about the items changed in the audit.
• You would suffer a financial hardship if you were required to pay the tax. You would not be able to pay for basic living expenses like food, shelter, and clothing.
• You did not significantly benefit (above normal support) from the unpaid taxes.
• You suffered abuse during your marriage.

If you feel you meet these criteria, then you need to complete IRS Form 8857. You can also go to the IRS website and go to the Innocent Spouse Explorer. Just answer the questions about your situation and it will help you know if you qualify and should complete Form 8857.

If your request is denied, be sure you exercise your right to Appeal the decision. If you are not sure you should Appeal, the IRS website also has a tool to help you determine if you have grounds for an Appeal, or not.

If you do not qualify for Innocent Spouse Relief you may qualify for Relief by Separation of Liability(this separates out the amount you are responsible for) or Equitable Relief(this is for cases of unreported or under-reported income). For more details on the criteria for these types of relief, visit the IRS website.

If you are confused about your situation and which type of relief fits your situation, contact an Enrolled Agent.

What If I Didn't Get My W2?

If you are wondering how to file your tax return if you have not received your W2, read the important information below from the IRS.

Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:

1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:

• Employer's name, address, city, and state, including zip code;
• Your name, address, city and state, including zip code, and Social Security number; and
• An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.

4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
• Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
• Instructions for Form 1040X (PDF 43K)

Tax Representation and the Enrolled Agent

If you are one on millions of taxpayers who owes the IRS and or has not filed a tax return in many years, you may need help. Tax representation is when you hire someone, like a Enrolled Agent, to represent you before the IRS.

An Enrolled Agent is not an attorney, but is someone who has passed exams given by the IRS that allows them to speak to the IRS on your behalf. You will need to sign a limited Power Of Attorney form. This only allows the EA to represent you before the IRS.

An Enrolled Agent has to follow all the rules set up by the IRS, but is probably aware of rights you have for resolution of your tax problems that you may not know about.

Unlike some of the ads you see on TV or radio, rarely are you going to get a cents on the dollar resolution. They make it sound so easy, but the IRS approves very few of these Offers In Compromise. Everyone wants one but very few people qualify. They are mostly for those with no assets and unable to work. If you own your home, and are young and able to work, you probably do not qualify.

You may qualify for a Currently Non Collectible Status which an Enrolled Agent can help you work on. The process is complex, and having someone on your side explain the process to you, can making an intimidating process easier to understand.

If you have a Revenue Officer, the Enrolled Agent can work with your Revenue Officer and help you understand your options and rights. In some cases you may not need to meet with your RO. But even with an EA, your RO still has the right to request to meet with you personally.

Choose your tax resolution company carefully. No one can promise you they know in advance the outcome of you situation. A thorough review of your tax problem and financial situation is required and what the IRS response will be to your situation, no one can be sure of. Be wary of anyone who promises you a specific outcome. Visit Effectur's website for more details.

As an Enrolled Agent, everyday I help clients who have tax problems. If you have questions and want a live chat on your tax problems, visit our website.

How Do I Know If I Need to File?

If you need help in determining whether or not you need to file a tax return this year, read the important information below published by the IRS on filing requirements.

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,900. However, self-employed individuals generally must file a tax return if their net income from self employment was at least $400.

Check the “Individuals” section of the IRS Web site at IRS.gov or consult the instructions for form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with IRS this year.

Even if you don’t have to file, here are six reasons why you may want to file:

1. Federal Income Tax Withheld. If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, if you made estimated tax payments, or had a prior year overpayment applied to this year's tax.

2. Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.

3. Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund.

4. Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

5. First time Homebuyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.

6. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.

For more information about filing requirements and your eligibility to receive tax credits, visit the IRS Web site at IRS.gov.

Links:

• Forms and Publications
• Recovery Rebate Credit Information Center
• Earned Income Tax Credit
• First-Time Homebuyer Credit Information Center
• Health Coverage Tax Credit
• 1040 Central

Audit Representation

If you are currently under audit by the IRS, you may be confused about what you need to do and what your rights are. You may decide you want assistance in handling your audit. Most audits are what they call correspondance audits and are done through the mail. An Enrolled Agent can help you through out this process.

We can help you go over the document request the IRS has sent you and work with you to provide the documents the IRS will require. You may need assistance in understanding what items are and are not deductible so you will know what you need to substantiate.

Once the initial audit report is issued, we can help you determine if you have any additional deductions you could claim or if it is best to agree to the tax assessment as is.

Once the tax is assessed, we will work to help you determine what is the best resolution of that tax debt based on an analysis of your current financial situation. We will represent you before the IRS in negotiating the best resolution possible.

If you don't want to wade through your audit alone, contact an Enrolled Agent.

What Happens If I Can’t Pay My Taxes?

If you know that you are going to owe more than you are going to be able to pay, and you are not sure what you should do, here are some helpful hints. First, at least file your return. Most people are not aware that it is not against the law to owe taxes, but it is against the law not to file your return. Not only is it against the law, but you will incur significant penalties for not filing by April 15.

Be sure you file your return, and if you owe, but cannot pay, you can file a form 9465 (available on irs.gov) with your return asking for a payment plan. You will still incur penalties for not paying by April 15, but you will prevent putting your wages and bank account at risk of being levied.

If you choose not to file form 9465, just be sure you respond to the notices you receive. If you choose to ignore the notices the IRS sends you, you will soon find your wages levied and your bank account cleaned out. Do not ignore these notices or you will find levies and tax liens filed against you. Tax liens will ruin your credit and make it difficult for you to get loans, and make selling your home and certain other property difficult.

File your returns and work out a payment plan with the IRS. In case you are wondering, no, I do not work for the IRS. I am an Enrolled Agent and everyday I work with clients whose wages have been levied, bank accounts have been cleaned out and business closed because they chose to ignore the IRS and their filing requirements.

IRS Addresses What If Questions

Read the important info below from the IRS on what to do in one of many situations you may find yourself in due to the down turn in the economy.

What if I lose my job? Is my unemployment check taxable? Can I afford to take money out of my retirement account? These are just a few of the "What If" questions people are dealing with these days.

The IRS recognizes that many people are going through difficult times financially. Often, there is a tax impact to events such as job loss, debt forgiveness or dipping into a retirement account. If your income has decreased, you may even be eligible for certain tax credits, such as the Earned Income Tax Credit, which can mean money in your pocket.

Most importantly, if you believe you may have trouble paying your tax bill, contact the IRS immediately. There are steps the IRS can take to help. To avoid additional penalties, you should always file your tax return on time even if you are unable pay your tax bill.

Here are some “What if” questions that are answered on the official IRS Web site. Simply go to IRS.gov and type the keywords "What If" in the “Search” box at the top of the page.

• Job Related
  What if I lose my job?
  What if my income declines?
  What if I withdraw money from my IRA?
  What if my 401(k) drops in value
• Debt Related
  What if I lose my home through foreclosure?
  What if I sell my home for a loss?
  What if my debt is forgiven?
• Tax Related
  What if I can’t pay my taxes?
  What if I can’t pay my installment agreement?
  What if I can’t resolve my tax problem with the IRS?
  What if I need legal representation to help with my tax problem but can’t afford it?

Remember. to access the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

How Do I Get My Levy Released?

If you have received notification that your wages are being levied, you probably are looking to have it released as quickly as possible. Your first move is to determine whether or not you have filed all your tax returns. You must have filed at least the last 6 years returns. If you have any unfiled returns, you must get these filed first.

Once all your returns are filed, or if you have already filed all your returns, you next move is to get into a payment plan. If your liability is under $25,000, then you just need to call and set up the payment plan and your wage levy will be released.

If you owe over $25,000 or are unable to make a payment as computed by the IRS for your liability, you will need to complete a financial statement. The form 433F is required, along with copies of pay stubs and the last 3 months bank statements. They may also require proof of your mortgage payment, car payment and certain other expenses.

Once your payment plan has been established or they have determined you are unable to make a payment and put you in Currently Non Collectible Status, then your levy will be released.

Your only other option for getting your levy release is in hardship conditions which you will have to substantiate. If your power, gas or water is about to be cut off or you are about to be evicted from your apartment, or your house is about to be foreclosed on, the IRS may agree to release your levy.

If you are unsure how to proceed or want someone to contact the IRS on your behalf, call an Enrolled Agent.