A Tax Consultant For All Seasons

7 Tips From the IRS For Business Owners

2009-07-14T20:40:00.002-04:00

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.

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.
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.
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.
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.
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.
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.
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

2009-06-30T19:43:00.003-04:00

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

2009-06-23T19:30:00.002-04:00

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

2009-06-22T20:16:00.002-04:00

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

2009-06-19T21:30:00.003-04:00

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?

2009-06-16T19:01:00.003-04:00

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?

2009-06-10T19:55:00.002-04:00

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?

2009-06-04T21:55:00.002-04:00

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?

2009-06-01T19:41:00.002-04:00

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?

2009-05-05T19:13:00.002-04:00

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?

2009-04-30T19:01:00.002-04:00

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?

2009-04-29T19:07:00.002-04:00

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?

2009-04-23T19:44:00.002-04:00

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

2009-04-21T18:39:00.002-04:00

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

2009-04-17T18:40:00.002-04:00

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

2009-04-14T18:29:00.002-04:00

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

2009-04-11T10:23:00.002-04:00

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

2009-04-09T19:47:00.003-04:00

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?

2009-04-06T19:32:00.002-04:00

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

2009-04-02T20:13:00.002-04:00

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

2009-03-30T21:15:00.002-04:00

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?

2009-03-27T18:47:00.003-04:00

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

2009-03-25T19:29:00.002-04:00

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

2009-03-22T13:12:00.002-04:00

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

2009-03-16T20:01:00.002-04:00

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

2009-03-13T18:53:00.002-04:00

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

2009-03-11T19:21:00.000-04:00

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

2009-03-09T19:17:00.002-04:00

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

2009-03-06T19:34:00.002-05:00

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

2009-03-02T20:16:00.002-05:00

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

2009-02-25T19:14:00.003-05:00

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

2009-02-23T20:37:00.002-05:00

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

2009-02-19T19:31:00.002-05:00

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

2009-02-16T18:37:00.002-05:00

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?

2009-02-15T17:43:00.001-05:00

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

2009-02-13T18:57:00.002-05:00

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?

2009-02-10T18:05:00.003-05:00

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:

Audit Representation

2009-02-09T21:00:00.003-05:00

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?

2009-02-04T19:07:00.002-05:00

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

2009-02-03T19:11:00.002-05:00

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?

2009-02-02T19:39:00.002-05:00

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.

What Records Do I Need to Keep

2009-01-29T18:37:00.002-05:00

Now that the new year has started, you may want to start off on the right foot. Tax time is drawing nigh and you may wonder what records you need to keep and for how long. Read the details below from the IRS on what the requirements are for maintaining tax records.

You probably already keep records in your daily routine. This includes keeping receipts for purchases and recording information in your checkbook. Keeping these and other records will help you avoid headaches at tax time. Good recordkeeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

Bills
Credit card and other receipts
Invoices
Mileage logs
Canceled, imaged or substitute checks or any other proof of payment
Any other records to support deductions or credits you claim on your return

Good recordkeeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Publication 552, Recordkeeping for Individuals ( PDF 61K )

Unpaid Payroll Taxes

2009-01-28T18:58:00.002-05:00

If your business has payroll taxes that it has not paid to the IRS, then you need to act quickly. You may not be aware of the problems not paying your payroll taxes can create. By not paying your payroll taxes you have put your personal finances as well as your business at risk.

If you cannot make your Federal Tax Deposits, the IRS can force you to close your business. Even if you have not paid some previous quarters as due, pay the most current ones. As long as you start paying them now and keep current, the IRS will work with you on paying back your past due payroll taxes.

The other issue you will face with unpaid payroll taxes is that the IRS can assess those payroll taxes to your personally. The fact that your business may be a corporation does not protect you. You and anyone in your business who had signature privileges on the payroll checking account, as well as all owners and officers of the corporation can be held liable for the payment of these taxes.

If the IRS assesses the Trust Fund portion of taxes to you personally, they may be able to put a lien against your personal residence. This will damage your credit and make it difficult for you to get loans. The Trust Fund portion is the amount you withheld from your employees pay checks. You are holding this money in trust and not paying it to IRS as required is serious.

If you need assistance in handling your payroll tax debt, contact an Enrolled Agent who can represent you before the IRS and work with you in finding the best options for your situation.

Tips on The Recovery Rebate Credit

2009-01-27T18:12:00.001-05:00

If you have questions about the Recovery Rebate Credit and whether or not it applies to you, read the important info published by the IRS.

Most taxpayers who received the economic stimulus payment last year will not be able to claim the Recovery Rebate Credit on their 2008 federal income tax returns. A small number of taxpayers who did not receive the full economic stimulus payment last year may be eligible to claim the Recovery Rebate Credit on their 2008 federal income tax return. Figuring the Recovery Rebate Credit incorrectly or entering inaccurate information will delay the processing of your tax return and any refund due.

Below are the four things every taxpayer should know about this one-time credit, which is related to last year’s Economic Stimulus Payment:

1. You do not have to pay back your Stimulus Payment and the payment is not taxable.

2. Less than an estimated 3 percent of taxpayers are eligible. The vast majority of taxpayers are not eligible to receive the Recovery Rebate Credit.

3. Did you have a major life change? If so, you may be eligible to claim the Recovery Rebate Credit. Some of the major factors that could qualify you for the Recovery Rebate Credit include:

Your financial situation changed dramatically from 2007 to 2008.
You did not file a 2007 tax return.
Your family gained an additional qualifying child in 2008.
You were claimed as a dependent on someone else’s return in 2007, but cannot be claimed as dependent by someone else in 2008.

4. Any Recovery Rebate Credit amount will be included in your refund. The IRS will figure the credit for you and include it in your refund or put it toward any taxes owed.

Links:

Recovery Rebate Information Center

What is an IRS Tax Lien?

2009-01-26T18:18:00.000-05:00

The other major reason you should try to prevent having a tax lien filed, is the affect if has on your credit. A tax lien will lower your credit score and show up whenever someone pulls a credit report. The tax will make it more difficult for you to borrow money for a car or a home or get credit for any purchase.

Respond to any IRS notice you receive and you may be able to prevent the lien. If you owe the IRS 25,000 or more a tax lien will be filed. If you are able to pay your liability below 25,000, the IRS may not file a lien.

If you need assistance in handling your IRS tax debt, contact Effectur. Our experienced Tax Consultants can help you determine which type of resolution is best for your circumstances.

Identity Theft

2009-01-22T19:08:00.002-05:00

The IRS just posted information on how to protect yourself from identity theft. Read the important details from the IRS below:

1. If you receive a letter or notice from the IRS which leads you to believe someone may have fraudulently used your Social Security Number, respond immediately to the name and address or phone number printed on the IRS notice.

2. If you receive a letter from the IRS that indicates more than one tax return was filed for you, this may be a sign that your SSN was used fraudulently.

3. Another sign that you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.

4. The IRS has a department which deals specifically with identity theft issues. The IRS Identity Protection Specialized Unit is available if you have been in contact with the IRS about an identity theft issue and have not achieved a resolution.

5. You can contact the IRS Identity Protection Specialized Unit by calling the Identity Theft Hotline at 800-908-4490 Monday through Friday from 8:00 am to 8:00 pm local time (Alaska and Hawaii follow Pacific Standard Time).

6. The IRS Identity Protection Specialized Unit is also available if you believe your identity may be at risk of being stolen due to a lost or stolen purse or wallet or due to questionable activity on your credit card or your credit report.

7. The IRS never initiates communication with taxpayers about their tax account through emails. If you receive an e-mail or find a Web site you think is pretending to be the IRS, forward the e-mail or Web site URL to the IRS at phishing@irs.gov.

8. The IRS has many more resources available to help inform taxpayers about identity theft on the IRS Web site at IRS.gov. On IRS.gov you can access information on how to report scams and bogus IRS Web sites. You can also visit the IRS Identity Theft Resource Page, which you can find by typing Identity Theft Resource Page in the search box on the IRS.gov home page.

9. The Federal Trade Commission is also available to assist taxpayers with identity theft issues. You can reach them at 877-ID-THEFT (877-438-4338).

10. Visit OnGuardOnline.gov for protection tips from the federal government and the technology industry.

IRS Notices

2009-01-22T18:28:00.001-05:00

If you have recently received a notice from the IRS, be sure you respond promptly. If you have received a notice from the post office for a certified letter from the IRS, refusing to pick it up and sign for it will only make your situation worse.

This notice is probably the IRS form CP504. This form is your notice of the IRS’ intent to levy your wages/bank account and to file a tax lien. This notice, which gives you 10 days to respond, is followed by for L1058, Final Notice of Intent to Levy. This form gives you 30 days to respond. If you ignore this notice, then the IRS will file a tax lien and levy your wages and bank account.

You best move is to respond to the notice by either calling the IRS directly or contacting an Enrolled Agent. An Enrolled Agent can represent you before the IRS and assist you finding the best resolution possible.

If you receive the CP503, calling the IRS before the CP504 is issued, could prevent a lien from being filed, depending on how high your liability is. Ignoring these notices does not make your tax debt go away. Responding promptly can save you money and save your credit rating.

Completing Your W4

2009-01-19T15:26:00.004-05:00

Now is the time of year you may be worrying about whether or not you had enough taxes taken out so that you won’t owe at tax time. Most tax payers have no idea how much they need to withhold. Several factors affect how many exemptions you should claim on your W4.

If you work more than one job
If you are married and file jointly
Whether or not you itemized deductions
If you are single with a child and can file Head of Household.

There may be others too. If you have had a change in circumstances since last year, you may need to change your W4 to avoid having either too much or too little taken out. Having too little taken out could cause you to have a balance due that you could not pay by April 15. If balances due are not paid by the due date, you will incur a failure to file penalty. If you have way too much taken out, you are giving the government an interest fee loan.

The simplest way to determine how many exemptions is to follow the link for the withholding calculator. Just answer a few questions and the calculator will tell you how many exemptions to claim. If you still need assistance, a tax professional such as an Enrolled Agent who can assist you in determining the right amount of exemptions for your situation.

Dependents and Exemptions

2009-01-15T20:07:00.002-05:00

If you are confused whether you you should file your own return if you are a dependent of someone else, or just have general questions about dependents, read the important information below from the IRS. If you have additional questions follow the link below to IRS Publication 501 or contact and Enrolled Agent or other tax professional.

1. Dependents may be required to file their own tax return. Even though you are a dependent on someone else’s tax return, you may still have to file your own tax return. Whether or not you must file a return depends on several factors, including: the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Credit payments you received.

2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,500 on your 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.

3. Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.

4. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return and were not the dependent of another taxpayer.

5. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

For more information on dependents and exemptions, including whether or not you or your dependent needs to file a tax return, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

Links:

IRS Publication 501, Exemptions, Standard Deduction, and Filing Information

Find the Tax Form That Is Right For You

2009-01-14T19:00:00.002-05:00

If you are confused about which tax form is right for you, read the helpful information published by the IRS included below. If you have questions that are not answered by the information below, contact an Enrolled Agent or other tax professional.

When you file your 2008 individual tax return, you will use one of three IRS tax forms. Be sure to use the simplest form you can, which will help you avoid costly errors or processing delays so you won’t have to wait to receive your refund. Each of these forms can be filed electronically, which speeds up the processing of your return.

Use the 1040EZ if:

Your taxable income is below $100,000
Your filing status is Single or Married Filing Jointly
You (and spouse) are under age 65 and not blind
You are not claiming any dependents
Your interest income is $1,500 or less

Use the 1040A if:

Your taxable income is below $100,000
You have capital gain distributions
You claim certain tax credits
You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees

If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. You must use the 1040 if:

Your taxable income is $100,000 or more
You claim itemized deductions
You are reporting self-employment income
You are reporting income from sale of property

When preparing your return, be sure to carefully check the instructions for the appropriate form. All IRS forms and instructions can be found on our Web site, IRS.gov.

Links:

Form 1040EZ, Individual Income Tax Return (PDF 105K )
Form 1040A, Individual Income Tax Return (PDF 138K)
Form 1040, Individual Income Tax Return (PDF 181K)
Publication 17, Your Federal Income Tax
Publication 17, Your Federal Income Tax (PDF 2.3MB)

The 5 Filing Status Options

2009-01-13T19:39:00.002-05:00

A source of confusion for many taxpayers is, what is my filing status? Included below are the IRS descriptions for each of the 5 possible filing status. Be sure you look carefully to see which situation best describes your situation. If you need additional help, contact an Enrolled Agent or other tax professional.

Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

There are two things to consider when determining your filing status:

First, your marital status on the last day of the year determines your filing status for the entire year. Secondly, if more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

Here are the five filing status options:

1. Single. This will generally apply to anyone who is unmarried, divorced or legally separated according to your state law.

2. Married Filing Jointly. A married couple may file a joint return together. If your spouse died during the year, you may still file a joint return with that spouse for the year of death.

3. Married Filing Separately. A married couple may elect to file their returns separately.

4. Head of Household. This generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

5. Qualifying Widow(er) with Dependent Child. You may be able to choose this filing status if your spouse died during 2006 or 2007, you have a dependent child and you meet certain other conditions.

There’s much more information about determining your filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link — Publication 501, Exemptions, Standard Deduction, and Filing Information (PDF 196K)

Tax Tips

2009-01-12T19:40:00.002-05:00

The IRS is publishing important information you need to know for tax season. I will include the major ones on my blog as they are posted. Read below this informative article on tax tips. Remember, if you need assistance filing your taxes, contact an Enrolled Agent or other tax professional.

1. Gather your records…now! It’s never too early to start getting together any documents or forms you’ll need when filing your taxes: receipts, canceled checks, and other documents that support an item of income or a deduction you’re taking on your return. Also, be on the lookout for W-2s and 1099s, coming soon from your employer.

2. Find your forms. Whether you file a 1040 or 1040-EZ, you can download all IRS forms and publications on our Web site, IRS.gov.

3. Do a little research. Check out Publication 17 on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return. Review Pub 17 to ensure you’re taking all credits and deductions for which you’re eligible.

4. Think ahead to how you’ll file. Will you prepare your return yourself or go to a preparer? Do you qualify to file at no cost using Free File on IRS.gov? Are you eligible for free help at an IRS office or volunteer site? Will you purchase tax preparation software or file online? There are many things to consider. So, give yourself time to weigh them all and find the option that best suits your needs.

5. Take your time. Rushing to get your return filed increases the chance you will make a mistake and not catch it.

6. Double-check your return. Mistakes will slow down the processing of your return. In particular, make sure all the Social Security Numbers and math calculations are correct as these are the most common errors made by taxpayers.

7. Consider e-file. When you file electronically, the computer will handle the math calculations for you, and you will get your refund in about half the time it takes when you file a paper return.

8. Think about Direct Deposit. If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a check by mail.

9. Visit IRS.gov often. The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, FAQs and updates on tax law changes.

10. Relax. There’s no need to panic. If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.

Links:

IRS Help for Taxpayers

2009-01-11T18:31:00.002-05:00

Even if you are already in an agreement with the IRS, if you are currently in a financial hardship, the IRS may be willing to cut you a break. Read the important information below to find out if your situation qualifies.

If you are facing financial difficulties and struggling to meet your tax obligations the IRS can help. As the 2009 tax filing season begins, in addition to new credits, deductions and exclusions, the IRS is taking steps to help people who owe back taxes. Here are some areas where IRS can help:

Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.
Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay are not necessarily accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new, second review of the information to determine if accepting an offer is appropriate.
Prevention of Offer in Compromise Defaults – Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.
Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons. Taxpayers seeking expedited releases of levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.

If you are behind on tax payments there could be additional help available if you are facing an unusual hardship situation. For assistance with your back taxes contact the phone numbers listed on your IRS correspondence.

More information is available on the IRS web site at IRS.gov.

Links:

IR-2009-2, IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options

Currently Non Collectable

2009-01-08T18:49:00.001-05:00

If your finances are such that you have no ability to make a payment to the IRS to repay your tax debt, you may qualify for a Currently Non Collectable or CNC status. You will have to provide the IRS with a complete financial statement and prove based on their standards, that you cannot make a payment.

This CNC status does not make your liability go away, and penalties and interest continue to accrue. The IRS will look at your income each year and if they determine that you then have an ability to pay, they will require that you begin to make payments at that time. After 10 years from the date of assessment , if the liability has not been paid, it is wiped out. (some exceptions to this time frame apply)

Again, this is something you can handle yourself, but having someone who is familiar with the IRS collection process can help you get the best possible arrangement. An Enrolled Agent can help you wade through the process. Knowledge about the IRS’ processes and procedures can really help you get the best resolution possible.

What ever you do, do not ignore notices you receive from the IRS. Respond as requested and get help from an Enrolled Agent if you want assistance is handling your IRS problems.

I Have a Revenue Officer-What Now?

2009-01-07T18:57:00.002-05:00

If you have been contacted by an IRS Revenue Officer, now would be a good time to call an Enrolled Agent. We help clients every day whose tax debt has put them with an RO.

Contacting an Enrolled Agent does not mean you will never have to meet with your RO, but even if you do, at least you have someone who can help you prior to, sometimes during and after your meeting. In some instances an RO will Summons you for an appearance and you will be required to go meet with them. Other times they request to meet with you for information and may agree to cancel the meeting if you have someone representing you who will help them get the information they need. Whatever you do, do not ignore an appearance before an RO. Do not skip a meeting.

It is important to be sure to comply with all requests or Summons the RO issues. Not working with the RO towards repaying your tax debt will be sure to tell the RO you are not interested in taking care of your debt and will cause them to issue levies and liens. They can clean out your bank account, levy your wages and issue a lien on all property which is a matter of public record and will hurt your credit. If you owe over 25,000 a lien will be filed no matter what you do. If you owe under that, a lien may or may not be filed.

If you have unfiled tax returns, the RO with require that you file all necessary returns prior to putting you into any type of payment plan. You will be required to complete a 433A Collection Information Statement.

Your attitude towards the RO and your willingness to cooperate goes along way in showing the RO you are willing to take care of your debt. Most ROs are more willing to work with you towards a reasonable resolution if you show you are going to cooperate with the process.

While you can take care of this yourself, you may find that the services of an Enrolled Agent will relieve you of the stress of handling things yourself. If you find you need assistance, contact Effectur for your peace of mind.

IRS Debt over $25,000

2009-01-06T18:03:00.002-05:00

If you owe over $25,000 to the IRS, you will be required to provide a complete financial statement. This form is called a 433A and asked a lot of questions about your assets and finances. If you own your home and have equity in it, the IRS will require that you apply for an equity loan up to the amount of your liability to pay off or pay down what you owe.

If you have money in an IRA or 401K, they will require you liquidate or borrow against it to pay off or pay down your liability.

If you have any ability to pay your liability down below 25,000, you will not have to provide the financial information or be required to secure payments as indicated above.

The 433A also asks for your income and expenses. Keep in mind that the IRS’ allowances for expenses may be a lot less than what you are actually spending. What your standard of living is, is up to you, unless you owe the IRS. Once you owe the IRS tax debt, you will be expected to adjust your living standards to what the IRS considers allowable. These amounts vary by area and can be found on the IRS website.

Negotiating and Installment Agreement when your liability is over 25,000 is complicated and you may decide you need an Enrolled Agent to represent you. Contacting an Enrolled Agent is not as expensive as hiring an attorney and they are admitted to practice before the IRS by taking a series of exams.

IRS Debt Below $25,000

2009-01-05T19:40:00.002-05:00

If the total amount of debt you owe the IRS is below $25,000, (This is for personal liability, not business) your solution is usually fairly simple. If you personal debt to the IRS is under 25,000, divide you total liability (including penalties and interest) by 60. This will tell you approximately what your payment should be.

You need to call the IRS at 800-829-7650 and ask for payment plan. If your liability is under 25,000 you do not have to provide financial information, but will probably have to tell them the name of your employer and bank. If you are pressed for more detailed financial information, do not give it. Let them know your liability is under the amount at which financial data is required. If you are still pressed for more info, you may let them know you want to call back later.

If you cannot afford to make the payment you computed above, you will have to submit a complete financial statement to the IRS to be set up in a payment plan.

You may find if you have problems on the phone that you need and Enrolled Agent to assist you. Contact Effectur for more information.

Problems With The IRS

2009-01-05T19:19:00.002-05:00

The next few blogs will be focused on those of you with tax debt. If you owe the IRS, you may be unsure what your rights are and how to proceed. Your best bet may be to hire someone to represent you. An Enrolled Agent can do so and Effectur is a company that has several Enrolled Agents who can talk to the IRS on your behalf.

Navigating the rough waters of the IRS can best be done by someone familiar with their processes and procedures. If however, you cannot afford assistance or just want to try it yourself first, the next few blogs will give you some helpful hints as well as let you know when handling your tax issues yourself, may not be the best option.

Remember no matter how friendly or helpful the IRS rep you talk to may seem on the phone, their job is to get you to full pay the money you owe and as quickly as possible. Many of them are helpful and are very reasonable to deal with. Some of them however will try to make you feel bad, that you have no options and will push you into resolutions you cannot afford. Also keep in mind what you feel you can afford and what the IRS feels you can afford may be poles apart! Read tomorrow’s blog for more details.

Early Distributions From Retirement Accounts

2009-01-04T16:56:00.003-05:00

Included below are important details from the IRS on early distributions taken from your retirement. If you withdrew your money before you are 59 1/2 you may have to pay a 10% penalty. For the details on under what circumstances you will not have to pay that penalty, read the information below.

To discourage the use of pension funds for purposes other than normal retirement, the law imposes an additional 10% tax on certain early distributions of these funds. Early distributions are those you receive from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2. The term "qualified retirement plan" means:
• A qualified employee plan such as a 401(k) plan,
• A qualified employee annuity plan under section 403(a),
• A tax–sheltered annuity plan under section 403(b) for employees of public schools or tax–exempt organizations,
• An IRA other than an education IRA, or
• If you have an early distribution from a SIMPLE IRA plan within the first 2 years of participation in the plan, the additional tax is 25%.
Distributions that are not taxable such as distributions that you roll over to another qualified retirement plan, or a distribution of your designated Roth contributions are not subject to this 10% tax. For more information on rollovers, refer to Topic 413.
There are certain exceptions to this penalty. The following six exceptions apply to distributions from any qualified retirement plan:
1. Distributions made to your beneficiary or estate on or after your death.
2. Distributions made because you are totally and permanently disabled.
3. Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
4. Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income. You do not have to itemize to meet this exception. For more information on medical expenses, refer to Topic 502.
5. Distributions made due to an IRS levy of the plan.
6. Distributions to qualified reservists. Generally, these are distributions to individuals called to active duty after September 11, 2001 and before December 31, 2007.
The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:
1. Distributions made to you after you separated from service with your employer, if the separation occurred in or after the year you reached age 55 (After August 17, 2006, does not apply to distributions from qualified governmental plans if you were a public safety employee who separated from service after you reached age 50),
2. Distributions made to an alternate payee under a qualified domestic relations order, and
3. Distributions of dividends from employee stock ownership plans.
The following exceptions apply only to distributions from IRAs:
1. Distributions equal to or less than your qualified higher education expenses,
2. Distributions made to pay for a first–time home purchase, and
3. Distributions made to pay health insurance premiums if you are unemployed.
Refer to Topic 557 for information on the tax on early distributions from IRAs. For more information, refer to Publication 575, Pension and Annuity Income, and Publication 590, Individual Retirement Arrangements (IRAs).
The 10% tax is reported on the appropriate line of Form 1040 (PDF) . You must also file Form 5329 (PDF),Additional Taxes on Qualified Plans (Including IRA's) and other Tax-Favored Accounts, if:
1. Your distribution is subject to the tax, and distribution code "1" is not shown in the appropriate box of Form 1099-R (PDF), or
2. One of the exceptions applies but the box labeled "Distribution Code(s)" does not show a distribution code of "2", "3", or "4". On the other hand, you do not need to file Form 5329 if your distribution is subject to the tax and a distribution code of "1" shows in the appropriate box. In this case enter the 10% tax on the appropriate line of Form 1040 and write "no" on the dotted line next to the appropriate line.
Distributions from a qualified retirement plan are subject to federal income tax withholding; however, if your distribution is subject to the 10% additional tax, your withholding may not be enough. You may have to make estimated tax payments. For more information on estimated tax payments, refer to Publication 505, Tax Withholding and Estimated Tax.

Child and Dependent Care Credit

2009-01-04T14:50:00.002-05:00

As tax time approaches, many of you are looking for deductions or credits that will reduce the amount of taxes you have to pay. If you pay for day care for your child, disabled spouse or elderly parent, read the important information below on how you can qualify for this tax credit. You may need to contact and Enrolled Agent or other tax professional.

If you paid someone to care for a qualifying individual so you (and your spouse if you are married) could work or look for work, you may be able to claim the credit for child and dependent care expenses. If you are married, both you and your spouse must have earned income, unless one spouse was either a full–time student or was physically or mentally incapable of self–care. The expenses you paid must have been for the care of one or more of the following qualifying individuals:
1. Your dependent (under the rules for qualifying child) who was under age 13 when care was provided. For certain custodial parents, refer to Child of Divorced or Separated Parents in Publication 503 , Child and Dependent Care Expenses. A noncustodial parent, however, cannot treat a child as a qualifying person even if the parent may claim the child as an exemption.
2. Your spouse who was mentally or physically not able to care for himself or herself and who has the same principal place of abode as you for more than one-half of the year.
3. Your dependent who was physically or mentally not able to care for himself or herself, for whom you can claim an exemption, and who has the same principal place of abode as you for more than one-half of the year.
In addition to the conditions just described, to take the credit, you must meet all the following conditions:
1. You must provide the taxpayer identification number (usually the social security number) of the qualifying person.
2. Your filing status must be a status other than married filing separate (You must file a joint return if you are married.)
3. The payments for care cannot be paid to someone you can claim as your dependent, or to your child who is under age 19 even if he or she is not your dependent.
4. You must report the name, address, and taxpayer identification number, (either the social security number, or the employer identification number) of the care provider on your return. If the care provider is tax exempt, you need only report the name and address on your return. You can use Form W-10 (PDF), Dependent Care Provider's Identification and Certification, to request this information from the care provider. If you do not provide information regarding the care provider, you may still be eligible for the credit if it is shown that you exercised due diligence in attempting to provide the required information.
If you qualify for the credit, complete Form 1040A, Schedule 2 (PDF), or Form 2441 (PDF) with Form 1040 (PDF). If you received dependent care benefits from your employer (this amount should be shown on your Form W-2 (PDF)), you must complete Part III of Schedule 2 (Form 1040A) or Form 2441. You cannot use Form 1040EZ if you claim the child and dependent care credit.
The credit is a percentage, based on your adjusted gross income, of the amount of work–related child and dependent care expenses you paid to a care provider. There is a maximum dollar limit of dependent care expenses you can use for this credit. The amount of the maximum dollar limit depends on the taxable year and the number of qualifying children. These dollar limits must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income. Refer to Publication 503, Child and Dependent Care Expenses, for additional information.
If you pay someone to look after your dependent or spouse in your home, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For information, refer to Publication 926, Household Employer's Tax Guide, or to Topic 756.

Earned Income Credit

2009-01-04T14:42:00.001-05:00

If you have low income for 2008 you may qualify for the Earned Income Credit. Most taxpayers who qualify are single parents in low income brackets. Read the info from the IRS below for more details on qualifying. Be aware that if you claim it and are not entitled to it. You will not be allowed to claim it again for at least 5 years.
If you need assistance in determining if you qualify, contact an Enrolled Agent or other tax professional.

You may qualify for the Earned Income Tax Credit, or EITC, if you worked last year, but did not earn a lot of money.
EITC is a refundable tax credit meaning you could qualify for a tax refund even if you did not have federal income tax withheld.
To qualify for the credit, you must:
• Have a valid Social Security Number (if you are filing a joint return, your spouse also must have a valid Social Security Number)
• Have earned income from employment or from self-employment
• Have a filing status other than married, filing separately
• Be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return
• Not be a qualifying child of another person (if you are filing a joint return, your spouse also can not be a qualifying person)
• Not file Form 2555 or 2555-EZ (related to foreign earned income), and
• Have a qualifying child OR:
o be age 25 but under 65 at the end of the year
o live in the United States for more than half the year, and
o not qualify as a dependent of another person
If you qualify, the amount of your EITC will depend on whether you have children, the number of children you have, and the amount of your wages and income last year.
For more information or to see if you qualify, go to www.irs.gov/eitc or call 1–800–829–3676 and request Publication 596, Earned Income Credit.

Form W4-Employer's Perspective

2009-01-04T14:32:00.003-05:00

Everything you need to know about your employees W4 is detailed in the article below from the IRS. If you have a small business, it is especially important that you know the what the IRS requires you to do.

When you hire an employee, you must have the employee complete a Form W-4 (PDF), Employee's Withholding Allowance Certificate. Form W-4 tells you, as an employer, how many withholding allowances to use when you deduct Federal income tax from the employees' pay. Form W-4 includes detailed worksheets to help the employee figure his or her correct number of withholding allowances. Employees may also want to access the withholding calculator on the IRS website at www.irs.gov/individuals for help in completing Form W-4. Tell any nonresident alien employees to see the Form 8233 Instructions before completing a Form W-4
If an employee qualifies, Form W-4 is also used by the employee to tell you not to deduct any Federal income tax from his or her wages. To qualify for this exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. However, if the employee can be claimed as a dependent on a parent's or another person's tax return, additional limitations apply. See the instructions for Form W-4. A Form W-4 claiming exemption from withholding is valid for only one calendar year. To continue to be exempt from withholding in the next year, an employee must give you a new Form W-4 claiming exempt status by February 15 of that year. If the employee does not give you a new Form W-4, withhold tax as if he or she is single, with no withholding allowances. However, if you have an earlier Form W-4 (not claiming exempt status) for this employee that is valid, withhold as you did before.
After the employee completes and signs the Form W-4, you must keep it in your files. This form serves as verification that you are withholding federal income tax according to the employe's instructions and needs to be available for inspection should the IRS ever request it.
In the past, employers had to routinely send the IRS any Form W-4 claiming complete exemption from withholding if $200 or more in weekly wages was expected or claiming more than 10 allowances. Employers no longer have to routinely submit these Forms W-4 to the IRS. However, Forms W-4 are still subject to review. Employers may be directed (in a written notice or in future published guidance) to send certain Forms W-4 to the IRS.
The IRS will also use information reported on Forms W-2, Wage and Tax Statement, to more effectively identify employees with withholding compliance problems. In some cases, where a serious under-withholding problem is found to exist for a particular employee, the IRS may issue a notice (commonly referred to as a "lock-in-letter") to the employer specifying the maximum number of withholding allowances permitted for a specific employee. The lock-in letter will also specify the marital status for purposes of calculating the required withholding under the lock-in letter. The IRS will provide the employee with an opportunity to dispute the determination before the employer adjusts withholding based on the lock-in letter.
The IRS will send a letter to the employee explaining that the IRS will require the employer to start withholding additional income tax unless the employee contacts the IRS by telephone or in writing to explain why the employee should not have withholding increased. A toll-free number and address for the unit handling this program will be provided in the letter. As an additional safeguard, the employer will also receive a notice to provide to the employee.
After the lock-in letter takes effect, the employer must disregard any Form W-4 that claims more allowances or exempt status, until the IRS notifies the employer to withhold tax based on the new Form W-4. However, if, at any time, the employee furnishes a Form W-4 that claims a marital status, number of withholding allowances, and any additional withholding that results in more withholding than would result from applying the marital status and number of withholding allowances permitted in the lock-in letter, the employer must withhold tax based on that Form W-4. Employers who use electronic Form W-4 systems must make sure the employee can not override the lock-in letter to decrease withholding via an electronic Form W-4 system.
After the lock-in letter takes effect, if the employee wants to claim complete exemption from withholding or claim a number of withholding allowances more than the maximum number specified by the IRS in the lock-in letter, the employee must submit a new Form W-4 and a written statement to support the claims made by the employee on the Form W-4 to the IRS.
You should inform your employees of the importance of submitting an accurate Form W–4. An employee may be subject to a $500 penalty if he or she submits, with no reasonable basis, a Form W–4 that results in less tax being withheld than is required.
You should keep blank Forms W–4 for the current year on hand so you can provide them to your current and new employees. An employee may want to change the number of withholding allowances or his or her marital status on Form W–4 for any number of reasons, such as marriage, an increase or decrease in the number of dependents, or an increase or decrease in the amount of itemized deductions or tax credits anticipated for the tax year. Any of these reasons could affect the employe's tax liability. If you receive a revised Form W–4 from an employee, you must put it into effect no later than the start of the first payroll period ending on or after the 30th day from the date you received the revised Form W–4, assuming there is no lock-in letter in effect.
An employer can download and print Form W-4 from the IRS website at www.irs.gov. Taxpayers may also order Forms W-4 by calling 1-800-TAX-FORM (1-800-829-3676). TTY/TDD users may call 1-800-829-4059 to order Forms W-4. A substitute Form W-4, developed by the employer, may be used instead of the official Form W-4, if the employer also provides the tables, instructions, and worksheets contained in the Form W-4 in effect at that time. Employers may refuse to accept a substitute form developed by an employee and, if the form is rejected, the employee submitting such form will be treated as failing to furnish a Form W-4.
If an employee fails to give you a properly completed Form W–4, you must withhold federal income tax from his or her wages, as if he or she were single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this employee that is valid, withhold as you did before.
Any unauthorized change or addition to Form W-4 makes it invalid. This includes taking out any language by which the employee certifies that the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false. When you get an invalid Form W-4, do not use it to determine federal withholding. Tell the employee that it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this employee that is valid, withhold as you did before.
For additional information, refer to Publication 15, (Circular E), Employer's Tax Guide, Publication 505, Tax Withholding and Estimated Tax, Publication 919, How Do I Adjust My Tax Withholding?, and the Withholding Compliance Questions & Answers on the IRS website at www.irs.gov. For the procedures for withholding income taxes on the wages of nonresident alien employees, refer to Notice 2005-76 and Aliens Employed in the U.S. on the IRS website at www.irs.gov.

Form 941 and 944 Deposits

2009-01-04T14:25:00.002-05:00

If you are a small business owner, read the important information below from the IRS that gives details on making your 941 and 944 deposits. Even if you have not done so in the past, now is the time to start making those tax deposits on time. Save your business money and yourself stress by taking care of your payroll taxes promptly and accurately. Read on to learn all the details you need to know.

The tax liability on a Form 941 (PDF), Employer's Quarterly Federal Tax Return, and Form 944, Employer's Annual Federal Tax Return, includes your employees' withheld Federal income tax, social security tax, and Medicare tax, and your share of social security and Medicare tax. If you are required to file Form 941 and you accumulate a liability for these taxes of less than $2,500 per quarter, you may submit payment of taxes due with your timely filed return. Similarly, if you are required to file Form 944 and you accumulate a liability for these taxes of less than $2,500 a year, you may submit payment of taxes due with your timely filed return. However, if you accumulate a liability for these taxes of $2,500 or more per quarter, and you are required to file Form 941, you generally must deposit your taxes periodically according to your deposit schedule (i.e., monthly or semiweekly). You generally must make tax deposits in the same manner if you are required to file the annual Form 944 and accumulate a liability of $2,500 or more per year. Some exceptions apply, as discussed below.
The withheld federal income tax and social security and Medicare taxes are added together on Form 941 and Form 944. If you made advance earned income credit payments to employees, these payments are subtracted from your total taxes. Refer to Topic 754 for more information on the advance earned income credit. The resulting net tax is the amount of employment taxes you owe for the quarter (Form 941) or the year (Form 944).
Form 944, designed to reduce the burden on small employers, is an annual employment tax return to report social security, Medicare, and withheld federal income taxes. Employers who file Form 944 will file one Form 944 for the year instead of four quarterly Forms 941. Employers cannot file Form 944 unless they are notified by the IRS that they qualify to file this form. If you believe your yearly employment taxes will be $1,000.00 or less for the tax year (approximately annual wages of $4,000 or less), please contact us at 1–800–829–0115 to determine if you are eligible to file Form 944. You should continue to file Form 941 quarterly until you receive written notification from the IRS that your filing requirement has been changed to Form 944 for a particular year.
Even if an employer's employment tax liability exceeds the de minimus deposit amount of less than $2,500 per quarter (for Form 941 filers) or per year (for Form 944 filers), the employer can make a payment with the return if the employer is a monthly schedule depositor making a payment in accordance with the Accuracy of Deposits Rule (see Publication 15, section 11).
An additional exception applies to Form 944 filers. Even if a Form 944 filer owes employment tax of $2,500 or more for the year, it may pay the fourth quarter employment tax liability with the return if it is less than $2,500, as long as the employment taxes for the first, second, and third quarters were already deposited.
If you are required to deposit your employment taxes, you must deposit them according to one of two deposit schedules, monthly or semiweekly. Which schedule you use for the current calendar year is based on the amount of taxes you reported during the four quarters in your lookback period. For details on your lookback period refer to Chapter 11 of Publication 15, or if you are required to file Form 944, refer to the Instructions for Form 944.
If you reported taxes of $50,000 or less during the lookback period, you are a monthly schedule depositor, and generally must deposit each month's accumulated employment taxes on or before the 15th day of the following month. For example, taxes for January must be deposited by February 15th.
If you reported taxes greater than $50,000 for the lookback period, you are a semiweekly schedule depositor, and generally must deposit your employment taxes on Wednesday or Friday, of each week, based on the following schedule:
1. The employment taxes on payments made to your employees on Wednesday, Thursday, and/or Friday, must be deposited by the following Wednesday.
2. The taxes on payments made to your employees on Saturday, Sunday, Monday, and/or Tuesday, must be deposited by the following Friday.
Semiweekly depositors always have at least 3 banking days to make a deposit. If any of the 3 weekdays after the end of the semiweekly period is a holiday on which banks are closed, you have one additional day to deposit.
Regardless of whether you are a monthly depositor or a semiweekly schedule depositor, if you accumulate taxes of $100,000 or more on any day during a deposit period, you must deposit them on the next banking day. If this happens, you become a semiweekly depositor for the remainder of the calendar year and for the following calendar year.
If any deposit due date falls on a Saturday, Sunday, or legal holiday, the deposit will be considered timely if made by the next banking day.
If you are a new employer, your taxes in the lookback period are considered to be zero for any quarter your business did not exist. Therefore, in the first year of business you are a monthly schedule depositor unless the $100,000 next day deposit rule applies.
Deposits are made either by using the Electronic Federal Tax Payment System (EFTPS), or by making payment to an authorized financial institution with a Form 8109, Federal Tax Deposit Coupon. If you use Form 8109, it is very important that it show the correct employer identification number, name, and type of tax and tax period, as this information is used by the IRS to credit your account. Your check or money order should be made payable to the financial institution where you make your deposit, not to the IRS. There are penalties for depositing late, or for mailing payments directly to the IRS that are required to be deposited, unless you have reasonable cause for doing so.
You must make deposits using EFTPS for all depository tax liabilities for the current year if you made more than $200,000 in aggregate deposits for all types of Federal depository taxes in the year two years before the current year or if you were required to make electronic deposits in the previous year.
If you are required to make electronic deposits through EFTPS and fail to do so, or make your deposit using a paper coupon Form 8109, you may be subject to a 10% penalty. Refer to Section 11 in Publication 15 for rules on depositing taxes.
Even if you do not have to make electronic deposits, you may voluntarily participate in EFTPS. To enroll in EFTPS, call 1–800–555–4477, or to enroll online, visit www.eftps.gov. For general information about EFTPS, call 1–800–829–1040 for individuals or 1–800–829–4933 for businesses.
Refer to Publication 966 (PDF) for Electronic Federal Tax Payment System information and Publication 15, (Circular E), Employer's Tax Guide, for deposit requirements.

Independent Contractor vs. Employee

2009-01-01T22:01:00.002-05:00

As tax time approaches, your employer may approach you about your status for next year. If you are asked to consider being an independent contractor not an employee, read the info below from the IRS to see which status really applies to your situation. Your employer could just be trying to save employment taxes, while still wanting to treat you in all other ways like an employee.

To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Type of Relationship itself.

Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. This includes:
• The extent to which the worker has unreimbursed business expenses,
• The extent of the worker's investment in the facilities used in performing services,
• The extent to which the worker makes his or her services available to the relevant market,
• How the business pays the worker, and
• The extent to which the worker can realize a profit or incur a loss.
Type of Relationship covers facts that show how the parties perceive their relationship. This includes:
• Written contracts describing the relationship the parties intended to create,
• The extent to which the worker is available to perform services for other, similar businesses,
• Whether the business provides the worker with employee–type benefits, such as insurance, a pension plan, vacation pay, or sick pay,
• The permanency of the relationship, and
• The extent to which services performed by the worker are a key aspect of the regular business of the company.
For more information, refer to Publication 15-A (PDF), Employer's Supplemental Tax Guide, or Publication 1779 (PDF), Independent Contractor or Employee. If you want the IRS to determine whether a specific individual is an independent contractor or an employee, file Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Alaska Permanent Fund Dividend Is Taxable Income

2009-01-01T21:56:00.001-05:00

If you are eligible for Alaska’s Permanent Fund Dividend, read the important information below, published by the IRS on the taxability of that income. If you need additional information, visit the IRS website.

SEATTLE — Don’t forget that the Alaska Permanent Fund Dividend (PFD) is taxable income on Federal income tax returns. Be sure to set aside enough to cover your tax bill, or consider making an estimated tax payment when you get your PFD. For more information on how to report the Alaska PFD income on the Federal tax return contact the IRS at 1-(800)-829-1040 or visit the the IRS web site at IRS.gov and input the key words in quotes: "Around the Nation Alaska" in the top right search engine.

The Internal Revenue Service reminds Alaskans that the Alaska PFD (including the one-time addition of the $1,200 Resource Rebate) is taxable income for both adults and children, and must be reported on a Federal income tax return.

Because of the size of the PFD this year, every child under 18 who is a dependent will be required to file a tax return, and will be affected by the “kiddie tax” rules. Many older children may be affected as well.

Special Tax Rules for Children
Special tax rules apply to children under age 18, and — beginning in 2008 — certain older children who receive more than $1,800 of unearned income, including the PFD and Native Corporation Dividends. Some people refer to this as the “kiddie tax.”
Beginning in 2008, the age of children whose unearned income is taxed at their parent’s rate increased. For children under age 18 and certain older children (described below), unearned income over $1,800 is taxed at the parent’s rate. These special tax rules apply to children who meet all of the following conditions:

1. The child had more than $1,800 of unearned income (defined below).
2. The child is required to file a tax return.
3. The child either:
a. Was under age 18 at the end of 2008,
b. Was age 18 at the end of 2008 and did not have earned income that was more
than half of the child’s support, or
c. Was over age 18 and under age 24 at the end of 2008 and was a full-time
student who did not have earned income that was more than half of the child’s
support. (Full-time Student and Support are defined below.)
4. At least one of the child’s parents was alive at the end of 2008.
5. The child does not file a joint return for 2008.
Unearned Income: For this purpose, unearned income includes taxable interest, ordinary dividends (including taxable Native Corporation Dividends), capital gains (including capital gains distributions), rents, royalties, taxable social security benefits, pension and annuity income and income received as the beneficiary of a trust.
Support: Your child’s support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your child’s support, count support provided by you, your child, and others. However, a scholarship received by your child is not considered support if your child is a full-time student.
Full-time Student: A student is a child who during any part of five calendar months of the year was enrolled as a full-time student at a school, or took a full-time, on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet.

Penalty Abatement

2009-01-01T21:41:00.003-05:00

If you have received a notice from the IRS for taxes due, it may include penalties and interest. The IRS does not abate interest (unless they made an error), but they do, in some circumstances abate penalties. To have penalties abated on your tax liability you need to request this abatement in writing. You need to state the reasons why you either did not file or pay your taxes on time.

Explain that it was not due to willful neglect, but due to the reasons you will explain. You need to attach documents to substantiate what your reasons are. Keep in mind they will only accept major issues that affected your entire life, not just your taxes. If everything else in your life was handled, and your taxes were the only item you could not take care of, they will not abate penalties.

If you had a death of a loved one, a major illness or addiction that affected all aspects of your life, they may abate the penalties. Be sure to include a timeline of events that shows you life was in turmoil when you taxes were due to be filed or paid.

If you need assistance in handling your abatement, contact an Enrolled Agent.

We're Back

2008-12-31T16:00:00.000-05:00

If you are a regular reader of my blog and wonder were it has been for a couple of weeks, well, we had technical snafu. We were in the process of changing to new host so I could add cool pictures like the one to left, as well as other features, when somehow, my blog disappeared off the internet and all my previous blogs were lost in the internet black hole. Unfortunately everything was lost, but not to worry, I will be adding plenty on new content for those of you who have tax questions or are looking for information about tax debt and tax issues.

For those of you who have not visited my blog before, I write on tax issues, give updates from the IRS on important tax info and discuss tax resolution and collection procedures. I am an Enrolled Agent and talk to the IRS everyday. I hope you find them interesting and informative.

If you have questions, please leave them as comments and I will try to answer them in an upcoming blog.

Thank You!

2005-05-21T14:55:00.000-04:00

Thank you for contacting A Tax Consultant For All Seasons. My aim is to respond to your inquiry within 24-28 hours.

If you need more immediate assistance, please click the Live Chat button to your left.

Thanks again. We will be in touch shortly.

~Becky