Filing Your Taxes? Here’s a Checklist

It doesn’t hurt to have a checklist that you can use as a guide when you are preparing everything you require to make sure that you’ll have no problems when tax time does come around. The process will be less troublesome and much simpler because you can successfully deal with the hassle of filing your taxes by following these steps.

Filing taxes is serious business that needs plenty of focus. Getting distracted would result in an IRS issue. If you’re not doing your taxes in one sitting, at least schedule certain tasks to help you focus.

As soon as you know what activity is at hand, you should actually start doing it. It can be so simple to get everything ready and then procrastinate. The best thing to do is start doing your taxes and you will be breezing through those forms in no time at all.

You will have to get organized. Many people don’t have too many assets or income streams, so their taxes are easy. One W-2 form from their employer and then a 1040EZ are all they have to accomplish. For other people, it is a bit more complicated. These are the folks who seriously should get organized. Being organized can make the process of filing your taxes a lot easier, but then it will also allow you to represent yourself better in case the IRS wants to audit your tax return. Anybody who has ever shown up in an IRS audit with a box full of loose receipts can tell you how it is. When it comes to your taxes, it’s always better to be organized.

Because the tax code changes annually along with changes in your own personal situation, it is sometimes a lot of work to stay informed on the various changes that will affect how you must file your taxes. But if you really need to take advantage of as many deductions as you are allowed to claim, it will definitely help out and potentially lower how much you should pay the IRS if you take the time to update yourself on the current guidelines that affect you and your taxes. You can read up on the most essential ammendments on the tax code in a library or online, or via the brief, free, 298-page IRS Publication 17. If you really must maximize your deductions, consult a tax professional. They won’t only maximize your deductions, but also help to keep you out of needing to address any IRS issues.

How Bankruptcy Can Help Stop IRS Collectors

Numerous people owe money because of problems financially. To collect tax debts, the IRS utilizes certain techniques, making it the most ruthless of creditors. Filing for bankruptcy can make available significant protection and get the IRS off your case.

Contrary to popular belief, bankruptcy is not a simple way out of debts. It’s a way to let people look for relief from debts legally, including tax debts. Filing for Chapter 7 bankruptcy makes it possible for all debts, including tax debts (though without guarantee), to be erased. People are provided the chance to solve their IRS problems through a payment option when they file for Chapter 11, 12, or 13 bankruptcy.

You receive an ‘automatic stay’ or legal protection when you file for bankruptcy. The IRS and all of your creditors must stop all actions against you as soon as you have filed for bankruptcy. Appealing to the bankruptcy court is the only way that any of your collectors can hurdle the automatic stay while your bankruptcy is still in the process of being discharged or dismissed. Although the IRS is a government entity, judges rarely lift the automatic stay. The IRS has to prove that fraud is being made for that to occur. You have more serious IRS problems on your hand if you’re conducting fraud.

Until the bankruptcy claim is discharged or dismissed, tax debts are merely frozen. The statute of limitations resumes when bankruptcy is dismissed, effectively lengthening it.

When certain requirements such as the three-year rule are met, tax debts are possibly definitely eraseed with a Chapter 7 bankruptcy claim. All tax debts considered are at least three years old, starting from April 15 of the year it was filed, according to the 3-year rule. Also included in the rule are extensions.

The second rule is aptly called the two-year rule. Two years prior to the bankruptcy is when the tax return must have been filed. There is also a rule called the 240-day rule. The IRS have to assess the taxes no less than 240 days prior to filing for bankruptcy in this one.

Even by filing a Chapter 7 bankruptcy, the IRS still has rights to the taxpayer’s property at the time of filing if a tax lien was filed prior to the bankruptcy claim. The IRS uses this significant loophole. The taxpayer essentially is bought time to solve the IRS problem by re-organization when a Chapter 11, 12, or 13 bankruptcy is filed.

Filing for Back Taxes

While most reasons for not filing taxes are acceptable, the fact is, even late or back taxes eventually need to be filed. Filing back taxes will in fact, alleviate or altogether avoid possible problems with the IRS. The IRS still requires that you file your taxes, whether you only missed a single year or haven’t done so since mid 1980’s. This will definitely lower your risk of being prosecuted by the IRS and having enforced tax collection procedures thrust upon you.

It is best to have all tax records in place but this may not be the case for some. Circumstances such as fires, floods and other calamities may have completely destroyed everything a person owns, including his/her tax records. However, one of the key measures to filing back taxes is finding a great tax attorney and accountant who will be able to aid in the reconstruction or retracing of a client’s tax records. At best, they can prepare and recreate relatively accurate and complete tax records dating back to 15 to 20 years ago.

In certain circumstances, people simply do not have enough funds to pay the amount due on their returns. Filing a missing tax return or back taxes is most probably, one of a client’s best options. Among the significant benefits of this move is avoiding a substantial penalty of 25%, which is the charge for late tax returns. Some states, however, penalize you with larger fees if you fail to file your income tax return.

In the case where you have complete tax records of previous years, all you need to do now is prepare your tax returns. For most people, though, this is the step that necessitates the help of a professional to avoid IRS problems. It is indeed a heavy load for a person if he/she does not know whether or not he/she still owes back taxes or to realize that such have not been settled yet. Simply making an appointment with a tax professional significantly eases this inconvenience.

Many people think that back taxes can be filed through electronic filing systems. The IRS, however, doesn’t accept these as they prefer to receive these requests through hand delivery or mail. To have proof that the IRS has received these tax returns, you must send them using certified mail.

Those who are aware that they owe the IRS any amount of money will be required to pay the applicable interest and fees. If you happen to be one of these people, you can always request help from the IRS for the setting up of payment schemes.

Filing back taxes can be relatively quick and simple depending on a person’s specific situation and other aspects of his/her case. Matters only get more complicated when you prolong to deal with the issue and you do not file or pay your back taxes at all. It can lead to an increase in the amount of money due and worsening of penalties that can be imposed on you.

The Effect of Alimony in Your Withholding Tax

It appears that the IRS makes its presence known in everything you do in your life. Whether you get married, get divorced, give birth, transfer to a new job, buy a house or purchase an energy-efficient car, you will always have tax implications for these actions. In this write-up, you will discover how alimony can cause your withholding tax to decrease and how you can get IRS help on this matter.

Federal taxes can be settled in two different methods. One is through the estimated tax. Mostly, people who work for themselves use this. According to the IRS, “estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.” A large percentage of the employees pay their federal income taxes by withholding. Here, your employer withholds income tax from your paycheck (this is why a big chunk of your pay seems to disappear when you get your check!). From whatever type of income your tax is withheld, it is always reflected under your name.

Two factors influence the amount that is withheld from your pay: your salary and the information provided on your W-4 (including details on whether you are withholding at the single rate or the lower married rate, how many withholding allowances you can avail of, and whether you want any additional income withheld). You can use the IRS’ Withholding Calculator for less tedious computation of your withholdings.

As mentioned before, several instances can cause your withholdings to change, and alimony adjustment is one of these. How should you go about this method? Generally, if you want to change the amount of income withheld, you have to accomplish a new W-4 and forward it to your employer.

Taxes are not taken out on alimony payments as these are classified as taxable income by the IRS. If you are a recipient of this, you may want to accomplish a new W-4 to update your income records. If you do this, you do not end up owing more taxes at the end of the year.

On the other hand, paying for alimony entitles you to a tax reduction. However, it should be paid through the following: in cash, through a check or through money order. Arrangements like directly paying certain bills for an ex-spouse are not considered alimony. A newly filled out W4 is enough to record requests for tax deductions gained from paying alimony.

Your life changes —- and some circumstances change more drastically in the course of a year. When they do come your way, do not forget to adjust the amount of income you have withheld from your paycheck.

Handling IRS Collections Methods

The IRS collections process starts when you submit to the IRS your tax return, without the amount due yet. The IRS will be the one to determine how much you owe them by sending you a bill. This first notice will include explanations of the amount due as well as a request to receive full payment. Other notices, this time containing applicable penalties and carrying more threatening tones, will be sent should you choose not to heed their mails. The good news though, is all these follow a specific order and format thus, you can refer to the IRS for more details regarding each. The general idea is that getting several notices means you are facing potential problems with the IRS.

Should you find some errors in the calculation of your taxes, you simply need to send the IRS a letter or make a phone call to request for a meeting with them. They will be more than happy to grant this request and make the necessary adjustments should it be proven that they incurred some mistakes. For instance, if you already paid the bill and they continue to send out notices, you simply need to give them proof of payment such as copies of a canceled check. Just make sure that only photocopies of the original documents are forwarded t to the IRS.

In the case where you feel you can’t afford to pay for the full amount of your taxes, certain payment options are available. An installment payment plan can be set up with the IRS. This payment option has three implications: you pay for your taxes over a longer period, you incur the applicable fees for the unpaid balance and you are penalized until you have completely settled your dues.

If you really find it hard to pay even a partial amount, options are still available. You may request the IRS to defer their collection efforts for a certain period – this is when you will be considered currently not collective. The negative part of this option though is you still incur interests that will most likely accrue, ultimately making your IRS problems compound.

Offer in Compromise, or most commonly known as OIC, is among the options that IRS offers to those who have problems paying their taxes. Here, a certain percentage of the debt is forgiven and you will only be required to pay a significantly lesser amount. Even though you will be required to undergo a more stringent process, applying for this option is worth the risk. OIC effectively ends your IRS problems, at least until the next year.

In a number of occasions, all you really need to do is simply contact your nearest IRS office to settle your IRS tax issues. There is also a significant number of incidents when it is wise to refer to a professional tax attorney or accountant for advice on dealing with any IRS collections method. Even though you are in debt, you still have the right to be treated fairly and in a just manner. Just remember that it is in your best interest to respond to any IRS notice. Otherwise, they will resort to enforced collections process, which is much more invasive than the usual notices you will get in the mail.

Tips in Avoiding an IRS Audit

A tax audit is dreaded by many mainly because those who have experienced the process have horror stories about their experience. The sad reality is although several of these stories are sound horrible and outrageous, some of them are factual. Individual tax payers and business entities can be audited at any time. But based on statistical data, more or less 1.5% of all tax returns in the United States are ever audited yearly. This is because there are a number of precautions that can be taken to reduce the chances of being audited.

The most important thing to take note is to report all of your income completely, regardless of where you get it from. No matter if you are an employee, an independent contractor or a business owner, the IRS guidelines clearly indicate what is required to be reported in a tax return. Even cash or tips earned also have to be declared and included in your tax return to avoid IRS problems.

Ensuring that you have all the proper documentation is yet another good thing to do. Employers, in general, are obliged to provide you a W-2 or a 1099 that reports the amount you earn from the previous year during the time spent working there. Make sure that the numbers on your W-2 are the same as those in your tax return. It is always a bright idea to keep the paperwork and have it readily available so that you have the ability to prove everything that you have listed on your tax return.

You also want to make sure that you review your tax return for math errors. This type of errors is easily checked and will definitely be seen by the IRS. Hence, make time to recheck for miscalculations in your forms. See to it that the correct entries are inputted in the correct lines of the tax forms. The IRS presumes that a sloppy math computation means a sloppy filling out of the other areas in the tax return.

The common mistake for business owners and independent contractors is thinking that home offices are used exclusively for business purposes. Simply claiming a home office to qualify for applicable tax deductions brings your tax return to the attention of the IRS as certain guidelines regarding this issue are outlined. The guidelines include not keeping personal belongings and not conducting personal activities in the home office. Also, you must not declare more than 20% of your home as home office.

Though it may seem that the government is against you and you cannot adequately battle an audit, certain precautions are available to avoid one. It is also important to remain composed as you are aware that you can take these precautions to protect yourself. After all, no one wants to turn a tiny glitch in the tax return into a big IRS issue.

What You Need to Learn About Offer in Compromise

The ultimate goal of an Offer in Compromise or an OIC, is the settlement and elimination your tax debt. This is an arrangement where both parties, composed of you as the taxpayer and the IRS, reach a mutually beneficial agreement.

In general, the IRS is open to accepting an Offer in Compromise so that unpaid debts can be settled for a lesser amount. A key consideration in accepting applications of this kind is the taxpayer’s capability to pay the entire amount. The amount that is submitted by taxpayer in the OIC should be a close reflection of the likelihood that the debt will be collected in the near future. For instance, if the likelihood of collecting that amount is higher, then a higher amount should be declared in the OIC. The same goes true for the reverse.

Filing for an Offer in Compromise requires that you have filed all your tax returns in the years applicable to the said request. Although the IRS has a record of your taxable earnings, it will not consider your request until official tax returns and estimate of your earnings are provided. It must also be kept in mind that it is vital for you to dutifully file your tax returns to avoid facing IRS problems, including imprisonment.

People who believe that an Offer in Compromise has a great deal to do with how much is actually owed from the IRS are mistaken. A greater aspect is how much the IRS believes they will be able to collect from you. It is this belief and understanding that is the central issue and one of the focuses of your Offer in Compromise. Applicants must prove to the IRS that they cannot afford to pay more than the recommended figures indicated in their forms. The likelihood of getting this request approved improves when such important considerations are deal with properly.

On the other hand, the IRS will still try to collect money from you while your OIC is still being processed. Procedures such as wage garnishments, tax liens or levies will be enforced all in an effort to collect your tax dues as soon as possible. The bright side is, you have the option to appeal to any of these collection methods by going through a process called the Collection Due Process Appeal. During the actual appeal hearing, you will be able to suggest an installment agreement and payment plan, or your Offer in Compromise. Both of these are substitutes to the collection methods that the IRS will be implementing.

To conclude, remember that tax debts will be settled eventually. Even if the IRS deems that you are capable of paying the entire amount, if you can adequately prove otherwise, you will still be able to put an end to these tax problems. As long as the IRS believes that tax settlement lessens overhead costs, it would agree to come up with one because such is important in keeping tax administration effective.

What You Need to Learn About Federal Tax Levy

The government employs two primary procedures in collecting tax debts from the taxpayers, wage levies and bank account levies. When the IRS enforces any of these on you, it means that your funds and other forms of income are in jeopardy.

The IRS has the authority to levy or garnish your wages when you owe them a certain amount of money. They can also garnish retirement income, social security benefits and any bonuses that you earn. Unlike many other creditors, the IRS, representing the government, actually doesn’t have to sue you in order for them to garnish your pay. All they have to do is send a notification to your employer and the latter is then obligated to transfer a certain amount of your salary to them instead of you. A wage levy release or the full settlement of your dues puts an end to a wage garnishment.

The IRS can actually go after your clients if you are an independent contractor or self-employed and compel them to pay a certain amount on your behalf. Although you will still get something from them, this amount is considerably less than the amount that you could have earned. If you have inquiries regarding the exact amounts, you may want to refer to the IRS Publication 1494.

The second method, a bank account levy, allows the IRS to take all the money in any of your bank accounts. The banks will ultimately comply with the government so arguing with them would only make your efforts futile. Be aware, however, that the IRS can only claim the funds that are in your bank account the day the levy is received. For instance, if you deposit a check on Friday and the bank got a levy notice on Tuesday, only the amount present on Tuesday will be given to the IRS. Funds from Wednesday to Friday can only be garnished if another levy is issued.

The law provides you a maximum of 21 days to get hold of a bank levy release from the IRS. However, if a levy release cannot be obtained within the prescribed period, the bank can then send the funds to the IRS. The amount of funds transferred to the IRS should be equal to the amount you owe but bigger amounts will be collected if there are repeated bank account levies issued.

Wage and bank account levies are just among the collection methods adopted by the IRS. In rare cases, they can also levy your personal belongings like jewelry, house, insurance policies and collectables. To avoid getting to this point, pay the government what you owe them as a tax levy is a grave IRS problem that does not simply go away.

No matter which way you look at a federal tax levy, it will always be a serious issue. For anyone who owes the IRS any amount in tax debt, it is highly recommended that they settle those debts before the government uses more serious collection methods like wage garnishment and bank account levies.

Filing for an Amended Tax Return

Whether you discovered that you made an error on last year’s tax return or the one you just sent off in the mail, it is always in your best interest to file an amended tax return. You don’t want the IRS to learn about the discrepancy because this could lead to serious IRS problem for you in the future. There are cases when the IRS simply identifies and rectifies math errors and informs you of any adjustments. When this happens, you don’t have to file an amended tax return. However, there are certain errors that you don’t want the IRS to discover themselves and that prompt you to file the amended tax return.

Usual errors are discrepancies in deductions or credits, total income, dependents and filing status. Remember, however, that sending a corrected tax return may lead you to get a refund or incur you any penalties.

The form you will want to use to file a corrected or amended tax return is Form 1040X, Amended U.S. Individual Income Tax Return. This will correct the tax return submitted through Forms 1040EZ, 1040A, or 1040. Amended tax returns must always be submitted through the mail. Electronic 1040X forms are not yet accepted by the IRS’ e-file systems. Essentially, the 1040X simply asks for any data that need to be amended and the reasons for the adjustments to your original tax return figures.

Correcting filing status are among the most popular reasons why people resort to amended tax returns. Form 1040x allows you to get the deductions that are otherwise taken from you if you filed under the incorrect status. A common change that is often seen on amended tax forms is a change from a single filer to a head of household. There is a substantial difference in the level of deduction available to those who qualify as head of household.

You have the ability to file an amended return anytime within the three years following that specific tax return’s filing date. However, only those who have paid all their tax bills on the tax return in question will qualify for this three year grace period. The period is reduced to only two years if you have not completely settled your dues.

If you have discovered a mistake in the return you recently filed, it’s best to wait until a refund is received and all the paperwork has been processed before you file for an amended tax return. This saves you from any mix up in your tax records or any duplication in your paperwork.

On the other side, there are instances when additional costs are incurred when filing for an amended tax return. No matter how tempting the choice of simply running away is, honesty and filing for an amended tax return will always pay off in the long run. This liberates you from future problems because the IRS will soon find out about this error. Also, there is also a higher possibility that the IRS will charge lesser fees to mistakes brought to their attention.

Information Regarding IRS Penalties

Feelings of apprehension when talking about IRS penalties and back taxes are normal and valid. Fortunately, guidelines and processes directed to providing regular taxpayers some recourse when faced with IRS issues are available. Taxpayers do have the ability to negotiate down, set up installment plans, and even undergo processes which may eventually dismiss any back taxes and penalties that may have been levied by the IRS.

There are various occasions when penalties that can be enforce on tax payers. These include among others, not filing a tax return, purposely misleading the IRS and not paying quarterly taxes. In fact, the IRS has an entire Penalty Handbook that was designed to enlist all of the IRS penalties, IRS tax penalty abatement and IRS penalty assessments. Remember, the IRS doesn’t receive all of their money from simply collecting taxes, but also from penalties levied on taxpayers.

The government provided taxpayers with several courses of action and made the process of dismissing tax levies relatively simple because it wants to ensure that penalties assessment is done in the correct manner. The process is now friendlier as opposed to the outrageous battle it once was.

Taxpayers learn about interests, levels and abatement of penalties by reading the IRS Penalties Handbook. When taxpayers are well-informed about the nature of these penalties, they will discover ways of reducing their chances of being subjected to these as well.

Fortunately, penalties are no longer automatic, as indicated in the IRS Penalty Policy Statement. If you can prove that your actions were done in good faith, you may qualify for the cancellation of some or all of your penalties or IRS abatement of penalties.

You may ask how much the IRS earns from the collection of penalties alone. Approximately, the figure goes over $15 billion. Not only is this a big source of income for the IRS, conversely, it is also the cause of a great amount of frustration on the part of taxpayers.

What makes matters worse for some taxpayers is the accumulation of their original tax due and the applicable penalties. Usually, the total amount due is doubled or even tripled in a very short span of time as interests are accrued on the new, larger sum. This results to difficulty in paying off the full amount.

You can in fact, make a written request for the cancellation of your penalties when you are issued with an IRS notice regarding this. This action marks the beginning of the penalties abatement process, which is a right all taxpayers can take. If proven that you did not deliberately defraud the IRS, the “good faith exception clause” in the provisions of IRS penalties can actually be used. In summary, despite the fact that IRS penalties pose a threat to you and your assets, their effects can be minimized, if not altogether eliminated, through the use of legal options.