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.