Four Smart and Effective Ways in Which You Can Get Tax Debt Relief

Today I have a special treat for you; Angela Brown is my guest blogger, providing solid information on IRS debt issues. Angela can be reached via the link in her bio.

Author Bio: Angela Brown is a contributory writer associated with a US-based debt consolidation non profit community and has written several articles for various financial websites. She holds her expertise in the Debt industry and has made significant contribution through her various articles.

4 Smart and effective ways in which you can get tax debt relief

If you have incurred a huge amount of taxes, it can soon get stressful for you to handle. It is not that you are the only person who has incurred tax debts with the IRS. There are many people who could not pay their taxes and have accumulated a huge list of tax debts. If you owe a huge amount of tax debts, your primary aim should be to pay them back and become debt free. But what would you do if you’re unable to pay off your debts on your own? Is there any solution to your IRS tax debt problem? Well, if these are the questions that are bothering you, you must read this article to gain some knowledge on paying back your IRS tax debts.

1. Request for extension of limit: If your personal finances are in a state of haywire and you’re unsure about whether or not you will be able to pay your taxes, then you must request the IRS to extend the time limit of your debt repayment period. But always make sure that you apply for this request before the last date of payment or else your request might be rejected. The extensions may vary from 30 days to 120 days according to the kind of financial condition you are in.
2. Penalty abatement: As you default on your IRS tax payments, there are various penalty fees that are added to your already existing tax amount. This may add up your tax to a huge amount and if you think that there is any mistake in the penalties that are added, you can legally request the IRS to remove them. However, before you ask for penalty abatement, make sure that you have all the documents at your hand so that you can give a proof of the suggested mistakes.
3. Request for installment agreements: If your total tax amount is large and you are finding it difficult to pay it off at once, make sure that you ask the IRS to allow you to pay in installments. With an affordable installment agreement, you can pay off your taxes without straining your wallet. Let the IRS devise a payment plan according to which you can repay your debts affordably and become debt free.
4. Offer-in-compromise: Offer in compromise is very much similar to a debt settlement policy that a consumer carries out with a creditor. The only difference is that this request is made to the IRS instead of a debt settlement company. This is a formal agreement where the tax payer offers to pay off an amount that is within his financial affordability. The IRS will accept your request only after reviewing your financial situation and checking whether or not you’re really able to pay off your debts.

Thus, if you’ve incurred huge amount of IRS tax debts and are looking for smart ways to becoming debt free, follow the ways mentioned above. Pay off your IRS tax debts and secure your financial life.

Doing It Right

I finished a large tax return today (I am writing this Monday night) for filing later in the week. He had a valid extension, but he waited until it was impossible for me to prepare an accurate return. Several pieces of information didn’t arrive in my office until after the due date.

As much as I hate missing a deadline, even if not my fault, I hate inaccurate returns more. I will never file an inaccurate return intentionally. This brings up a good question: Where do you draw the line on accuracy?

Remember your college days? All the quizzes and exams had a correct answer from the information provided. In the real world, people forget to keep receipts, lose mileage logs, and sometimes wait years before deciding to file.

Rather than go into a long dissertation on what the tax code says, I want to provide some user friendly guidelines. First, if the information is obtainable, you need to acquire it before I am willing to file the return. If documentation is lost or never recorded, a best effort to get a reasonable number is allowed. This is the least preferred way to file a return and used as a last resort only. But you still need to file. If data is impossible to get, you need to make a best guess.

The IRS will do the same thing if you lose documents. However, their reasonable number will be different than your reasonable number. A good accountant comes in real handy at times like these. I use formulas that have withstood IRS scrutiny and help clients build a strong reasonable number.

Accountants refer to this as Cohen’s rule. I will not bore you with tax court rulings; this is a family-friendly blog. The only way I will delay a return is if the information is available and forthcoming. Otherwise, we file the return and amend later if better data becomes available.

To reduce or eliminate this problem, start early. Lowers stress, too.

First-Time Homebuyer Credit Running Short

If you have plans to buy your first home, you better hurry. The first-time homebuyer credit expires November 30, 2009. There is no plan to extend the credit at this time.

The $8,000 credit is refundable, meaning, if your taxes are under $8,000, the excess will be paid to you. You can amend your 2008 tax return to claim the credit immediately.

The old credit for 2008, capped at $7,500 was no more than an interest-free loan. Those credits must be paid back in 15 equal installments starting with the 2010 tax return.

For 2009, the credit expanded to $8,000 and doesn't get paid back. The home must remain your primary residence for three years or the credit is forfeited.

You must close on the home prior to filing an amended return for the credit. Use form 5405. The IRS is slow sending checks for this credit due to the volume received and for fraud prevention. The credit has turned into a fraud problem for IRS, so they are reviewing all claims for the credit.

Follow-up note: After I wrote this post I read that there is an effort in Congress to extend the credit. Stay tuned; I'll fill you in if it is extended.

Times Up

If you haven't filed your taxes you may suffer a late filing fee. If you have a refund, no problem; if you owe, penalties and interest will apply.

Note on how to make a tax accountant happy: Get you stuff in early.

A couple people in my office waited so long (and brought in boxes) so I couldn't finish on time. Sorry. Get it in sooner or you risk financial loss.

Tax Deadline October 15th

The deadline to file your taxes is October 15th, assuming you filed an extension. After that... [friendly accountant drags index finger across his throat].

High Taxes

If you didn't already know, Wisconsin has very high taxes. We are number 12 on the list. Read all about it here.

Mortgage Interest Crackdown

As reported in The Kiplinger Tax Letter this week, the IRS is using additional tools to catch tax cheats. Revenue is going nationwide using Form 1098 (mortgage interest) to find nonfilers. Large interest payments without a filed return will likely cause an audit. Also, having a mortgage interest expense higher than your reported income may bring the taxman to your door.

As a reminder: There is a $100,000 cap on home equity loans. The IRS wants banks to separate this out on Form 1098 for easier enforcement. Home equity loans used for investment or business may be deductible separately.


Kiplinger is a great resource and investment.

Making Work Pay Tax Credit

Most have forgotten about the Making Work Pay tax credit by now. In a few months a nasty surprise may show up on your tax return if you don't check into this credit immediately.

Making Work Pay is a refundable federal tax credit of $400 for individuals and $800 for marrieds filing jointly. I'm not going to go into details on how the credit is calculated, but you need to know how it will affect your tax return next spring.

The credit applies to working people only; if you have no earned income, you don't get the credit. Pensioners, married couples with multiple incomes, individuals with multiple jobs, dependents, Social Security recipients with jobs, and workers without valid Social Security numbers need to pay special attention.

The IRS withholding tables provided employers have some flaws. The table works best for individuals with one job, but may under withhold in multiple job situations and for those working and receiving Social Security and/or a pension. Withholding for pensions is also wrong as it allows the credit when it is disallowed on the tax return.

Check to make sure you have enough withheld. We are early enough in the year to change your withholding without major pain. Review you tax situation and withholding with your tax advisor or look at last year's return and compare it to current withholding. If too little is withheld, file a new W-4 with your employer.

Take care of this now to protect your refund in spring.

Energy Tax Credit Review

I received several questions on the energy credit this week and now is a good time to review this as the we head into winter.

The tax credits are available at 30% of the cost, up to $1500 for: windows, doors, insulation, roofs, HVAC, non-solar water heaters, and biomass stoves. The credit is available for tax years 2009 and 2010 and applies to existing homes only.

Tax credits for 30% of cost to tax year 2016 with no upper limit applies for: geothermal heat pumps, solar panels, solar water heaters, small wind systems, and fuel cells. These credit are for new and existing homes.

The questions this week focused on the amount of credit for those in lower income brackets. The energy credits are non-refundable, meaning you must have a income tax liability to deduct them. A good starting point is last year's tax return. Review your tax liability with your tax professional and make sure you benefit if taking the credit.

Roth IRA Tango

For 2010, regular IRA's can be coverted to a Roth IRA without any income limitation. Currently, taxpayers with an AGI above $100,000 cannot convert to a Roth.

Here are some tax strategies for high incomers to consider:

• You can set up a regular IRA and make nondeductible contributions and converting to a Roth in 2010. Tax is due on the earnings only.
• You have the option to report half the income in 2011 and the remaining half in 2012.
• If you convert to a Roth early in 2010, you start accumulating earnings tax-free sooner.
• Remember, distributions after attaining age 59 1/2 are tax and penalty free.
• Roth IRAs have no required minimum distributions for people age 70 1/2 and over.

Review these options with your tax professional before implementing a tax strategy. Additional advantages may be available to you.

Link

Since I have a head cold I am providing an interesting link for today instead of a real blog post. Everything you wanted to know about the federal budget:

http://www.getrichslowly.org/blog/2009/08/24/understanding-the-federal-budget/

The Professional Thing to Do

It is a good idea to keep your accountant in the loop. A quick follow-up on documents you need to provide, but struggle to acquire, helps the accountant ward off nasty surprises.

The IRS loves to drag its feet when it comes to getting its paperwork out, but gives you 10 days, or else. The 10 day expected response is not hard and fast. You do need to keep the IRS informed of the timeframe for getting documents in. If your accountant knows, he should contact Revenue for you.

When pursuing an Offer in Compromise, I recommend you meet the 10 day window the IRS demands. If you don't, they will likely reject your offer and you will need to start all over again.

I know this is frustrating, especially when an IRS auditor demands documents within 10 days and then sits on them for three months. I never said it was fair; I'm just telling you how it is.

Besides, in most cases, there is no good reason to delay. The faster you get a resolution, the faster you get your life back.

I Ain't Got No Money

Behind my desk sits a file with completed documents. The client refuses to pick-up or file the forms with the IRS because she is short the amount due. Of course, you realize, she is only digging the hole deeper.

Friendly advice from your local accountant: Always file on time, even if you can't pay. Why? Because there are several IRS penalties in this world: penalties for not paying on time and penalties for not filing. The last penalty is a self-inflicted wound. File on time and set-up a payment plan, thereby forgoing the late filing penalty.

This is the easy way to reduce your tax burden. It is bad enough you have to pay taxes, why volunteer to pay extra.

Links

Because I am on vacation I provided some interesting links below. I'll be back Monday.


http://online.wsj.com/article/SB125020653689430645.html

http://online.wsj.com/article/SB10001424052970204313604574328273572673730.html?mod=rss

A Wise Choice

Choosing a tax preparer is more than shopping price. There are varying levels of competence among tax preparers and it's possible to hang a shingle without any qualifications.

Tracking a tax preparer is difficult, even the IRS has little oversight (accountingToday Vol. 23, No. 12). Since your tax preparer is handling your annual reconciliation (tax return), it is in your interest to find the best.

Can you trust the IRS to weed out bad preparers? No. The IRS tracks paid preparers on 22 different systems and many preparers use different identifying numbers. The IRS admits it cannot follow-up on all preparer complaints. The IRS doesn't even know how many paid preparers exist.

Let me give two examples that highlight the problems finding a competent tax pro.

A few years back I completed an audit where the IRS auditor threatened me with preparer penalties. Her expression was amusing when I showed her two IRS letters providing advice on the complicated tax situation. What happened is that the IRS reversed its position. If this happens, you will owe the tax and interest, but no penalty. Preparer penalties are not in the cards since we trusted the IRS's advice. In reality, it was a rouge agent on an ego trip. She has since left the area.

Next, a new client arrives from a tax preparer that changed his information prior to e-filing. The preparer added credits the taxpayer wasn't entitled to, changed the taxpayer's address, and direct deposited the refund to his own account. We provided the IRS with all the details and they have done nothing. The preparer wasn't shut down. The taxpayer is headed for tax court to get his refund. He is out over $10,000 and pushing higher. The preparer in question had a good prep fee: $60. Any tax pro that charges $60 is pulling a scam, unlicensed, or unqualified. Remember the difference between price and cost. If you save $100 in prep fees and overpay your taxes by $500, is it really a good deal? And if you get lucky and find a crooked preparer, God have mercy on you, you'll need it.

Since the IRS is unable to help you choose a qualified preparer, what can you do? The two real examples above show how the IRS fails to protect you, the taxpayer. The IRS promises more oversight, but I doubt it will be anything more than token.

To increase your chances in finding a real tax pro requires a small amount of research. First, your tax pro should be an enrolled agent (EA), CPA, or attorney. Second, they should have several years of experience.

EA's are the only tax pros. CPAs are accounting pros that might focus on taxation; attorneys, legal pros. Once you find an EA, check to see how long they have been in the field. If they are starting their business, but have worked in a tax office for years, that is real experience.

Finally, ask around. Successful people have a good working relationship with their tax pro.

It is never too early to start looking. Now is the perfect time to cement a relationship with a tax pro. They have time now and are less likely to spend time acquiring new clients when they are working fifteen hours a day. It could be the best time you spend all year with a high return on investment.

Good Business Advice for Everyone

I commented on a blog last night that I think is solid advice for anyone in business. Give it a look-see.

http://pubrants.blogspot.com/2009/08/writing-as-business-part-2.html

What Will the Accountant Think

Two clients that left me years ago returned to the fold. Both clients own a business and suffered a setback when they terminated our engagement. Business is tough again and they need advice to maintain and grow their company, advice their current accountant could not provide.

I had a long talk with each this week and discovered the reasons they left my firm. First, they were embarrassed to have me see them fail, and, second, they felt it was my fault their business declined. Let me address both issues.

Embarrassment is a poor reason to end a relationship with your accountant, doctor, attorney, or any professional. Let me be clear: I am here to help you with the difficult issues. Every business eventually will hit a wall. The economy, industry, regulation, or other issue will put a company in a difficult position. This is the most important time to talk with your accountant. This rule also applies to personal finance. Accountants work financial issues all day long and frequently have referral resources to fit your specific issue. Avoiding your doctor because of an embarrassing rash is foolish. The doctor can prescribe ointment to solve the problem. Let your accountant apply some ointment to that financial, tax, or business rash.

The second issue is an underlying joke in the accounting profession. When a business fails, blame the accountant; must be his fault. This same theory shows up when people owe taxes on April 15th. Remember, you run/manage your business, not the accountant. I can give advice, but you need to apply it. The buck stops with you. It is counterproductive to blame the accountant. He is your friend, helping you sail the rough waters, with advice and referrals. Your accountant wants you to succeed. We want to keep you as a client. Trust me on this, I want my clients to all be rich and getting richer. Wealthy clients make accountants happy. If only I could force you to work through the issues.

Don't be afraid of your accountant; our job is to help with the tough issues. We've seen most of it before. We enjoy the challenge, want to help. As a group, accountants snap into action mode when a client comes in with issues. We shine brightest at these moments.

IRS Failure

The Treasury inspector informs us some big past-due accounts are not actively pursued. The inspector found 448 (as reported in The Kiplinger Tax Letter: Vol. 84, No. 15) overdue accounts over $1 million not actively worked. The IRS argument for failing to collect on these accounts is that some amounts due only surpass $1 million with penalty and interest.

Taxpayers deserve better. When this kind of money is left on the table, you and I pay higher taxes to make up the difference. Some of these accounts may be uncollectable. Still, some of the $1.2 billion due on these 448 accounts is collectable. There is no reason these accounts are not even worked.

The Busy Month

August used to be a busy month at the tax office until they changed the date extensions are due to October, the new busy month. Even still, for the first business day of August, I had no lunch break. People kept coming in the door and the phone kept ringing until I ran errands.

Jeff filed two tax returns today and has two appointments tomorrow for filing.

Why do I wax on about this? Because I am tied and look forward to a few days off. I plan on stepping out a few days over the next two weeks to catch up. I also want to impress upon you that it is okay to file your taxes before your extension runs out. You see, around October 10th, twenty or so people will be very angry at me because I can't finish their return prior to their extension expiring. Of course, they are mad everyone else procrastinated like they did and now they will suffer the consequences in the form of IRS penalties.

Don't blame your accountant if you wait till the last minute. Let me serve you by giving me the time to explore every tax saving angle possible. I am not the fast food of tax preparation and you should expect more than fast food quality. I love my work, and love it most when I get the best deal for you.

Tax Increases

I'm as scared as hell, and you should be, too. I reviewed the package of tax increases passed and proposed today and know a lot of clients will suffer.

Many people will suffer income tax rates above 50% federal and state combined. And the government needs more money to stay solvent. Your money.

Even though the marginal tax rates may not reach 50%, when combined with phase-outs, the tax burden will increase by more than half for a large number of people. The higher your income, the deeper the bite.

Online Accounting Classes
provides information about the classes you can take to become an accountant. One needs advanced training to become an accountant, and this resource gives you the information you need to start learning more about it.

All the money the government pumped into the economy over the last several years will turn to inflation unless removed. There are only two ways to remove the money: higher taxes or higher interest rates.

At one time I felt inflation would accelerate. I still do, but with less conviction. The tax increases will mute the push-pressure on prices.

To put tax increases in perspective, consider this: If your taxes are 30% and rise to 35%, your tax burden has not increased 5%, but over 16%. The 5% increase is against your total income. Five divided by thirty is 16.6%, the real increase in taxes coming out of your pocket. This is money that could be used to buy goods and services, creating jobs. Now, it will go to the government for public spending and debt servicing.

My gut feeling is that the economy has seen the worst this round. Even if the economy improves, it will not translate to a higher standard of living. And if you have debt it will be worse yet. You pay debt off with after tax dollars.

It is in your best interest to reduce debt and prepare for a major transition in our economy, and I'm not just talking about alternative energy.

On a brighter note: Weather has sure been nice.

Don't throw anything at the nice accountant. Congress made the rules, we are just the messengers.