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Take a Proactive Approach Before Next Tax Season

Author: Keith Huggett

While you may still be thinking about the last few weeks of summer thinking that it’s too early to start preparing your business for tax season, you may want to reconsider putting your tax planning on hold—after all, the peak of the tax preparation period is just a few short months away.

While it is wise to engage in tax planning strategically and consistently throughout the year, if you haven’t done that this year, then now is the time to be proactive and get organized—especially if your business has fallen behind on any tax payments.

Here are a few tips to help you put yourself in the best position possible when it comes to filing your business taxes next year:

Make a plan to pay back taxes. If you have fallen behind on any of your business tax payments, start today to right the situation by creating a plan to avoid further penalties by making payments. Accounting professionals are usually well-versed in IRS problem resolution—including those involving non-payment of taxes, so don’t be afraid to speak up and ask for help to create a plan that your business can afford.  

Be proactive about payroll taxes. If your business is behind on payroll taxes, consider discussing with our firm the possibility of using an IRS installment plan to get back on track. If your business owes less than $25,000 in combined tax, penalties and interest, and has filed all required returns, this may be an option.

Avoid paying fines related to retirement plans. For businesses sponsoring retirement plans, failure to file Form 5500 for annual reporting can result in fines as high as $15,000, so be sure that you are up-to date on this requirement. If you do have a penalty and were legitimately unaware that you needed to complete this filing, you may be eligible for the U.S. Department of Labor’s program to reduce or eliminate these penalties.

Start organizing your tax records now. Organizing your business tax records now can make filing taxes much easier and faster come tax season. It can also show you exactly where you stand in terms of tax payments and any penalties that you may be facing. Compiling your documentation well ahead of time will reduce your stress and allow you to easily file a complete and accurate return and make any provisions for payment plans or IRS problem resolution. 

If your business has fallen behind on taxes or you are facing tax-related penalties, don’t wait until tax season is here—please contact our office so we can help you prepare and make a plan ahead of time.

How to Get Current with the IRS

Author: Keith Huggett

Are you up to date on filing your taxes? Failing to file your tax returns in a timely manner can happen to anyone.  How do you fix the situation? How do get back into the system and make things right with the IRS:

Gather your Tax Information - For the years of non-filing it is important to gather together as much information as possible.  This will include W2s, 1099s, receipts, financial records, mortgage interest you paid,  interest, dividends and stock sales, among others.  If you are missing information it is okay.  This is your jumping off point.

Order Transcripts - IRS transcripts show what has been reported to the IRS – this will be a comprehensive listing of the 1099s and W2s that were sent to you. You can compare this information with your records, filling in any missing information.

Self Employed? If you are self employed you will need to determine your income and expenses. Working backwards, using your bank records to determine what you spent to live (food, housing, utilities, etc.,) can help you cross-check your income and expenses.

Before You File - Do you know if you owe back taxes? If so, can you pay them? Having a complete financial profile of your current situation can make things progress easier with the IRS.  You may qualify for IRS hardship status. If you are need of an Offer In Compromise, payment plan, or filing for "non-collectible status" the IRS will work with you.

Estimated Returns - Sometimes, when you don’t file a return, the IRS files one for you.  Most times, an IRS substitute for return gets it wrong, charging you for income that was reported on W2s and 1099s but not giving you any deductions or exemptions.  You may already have a bill from the IRS from a Substitute for Return.  These estimated returns can be corrected – and the tax lowered – by filing an original return.

Once you've filed the returns, be aware that it can take the IRS several months to actually process them.  If you owe taxes, the IRS will start to send you billing notices once the returns have been processed.   If you owe money, the next step is finding solutions to the balances due. This usually consists of filing for an Offer in compromise, installment agreement, uncollectible status and/or bankruptcy.

For a no obligation, no cost consultation of your tax situation, contact the tax representation specialists at The Tax Office, Inc.

What Do All the Different Notices Mean?

Author: Keith Huggett

Once tax season is over, the IRS spends its time contacting those taxpayers and business owners who failed to pay their taxes. Throughout the collection process, several notices will be mailed to delinquent taxpayers from the IRS.  Please be aware that the IRS communicates SOLELY through the U.S. Postal Service.  If you receive emails or telephone calls from someone claiming to be from the IRS you should report this contact to the Treasury Inspector General for Tax Administration at 1.800.366.4484.  You can file a complaint using the FTC Complaint Assistant; choose “Other” and then “Imposter Scams.” If the complaint involves someone impersonating the IRS, include the words “IRS Telephone Scam” in the notes.

However, if you receive a communication from the IRS it is critically important to open the correspondence as soon as you receive it and determine what the IRS is contacting you about.  While the majority of communications are regarding an error with your tax return, if you owe back taxes the IRS issues collection letters in this order:

CP 14 - Balance Due, No Math Error

The CP 14 shows the underpaid tax according to IRS records. The notice shows the tax reported on the return, the payments the IRS applied to your account, and the remaining underpayment they have calculated.  Additional interest and penalties may accrue if the balance is not paid in full by the due date. If you do not agree with the additional tax due, a response should be made to the IRS as soon as possible to settle the issue with your account.  An example of a CP 14 can be found here.

IRS Notice CP 501/CP 502 - Balance Due Reminder Notice

The CP 501 is the first reminder notice that you have a balance due on a tax account. The IRS has previously sent a notice about a balance due on a tax account. This reminder notice alerts you that there is an outstanding balance and, if not paid within 10 days, the possible actions the IRS may take. If you don’t pay or arrange an installment agreement the IRS may file a Notice of Federal Tax Lien.

CP 503: IRS Second Notice of Balance Due - Meaning & Actions Needed

The CP 503 is a reminder and a means to collect on a balance that the tax payer still owes. This letter is a final notice and follows previous attempts to receive payment. When you receive this letter it is important for you to read it carefully and to reply immediately because if you don’t, the IRS could take action against.

IRS Notice CP 504 - Final Notice - Balance Due

This is the final notice that you will receive from the IRS prior to the IRS fulfilling their intention to levy or take your state tax refunds. The CP 504 will clearly state the IRS's intention to levy your refund or other property.  The notice will also have a coupon at the bottom or end of the notice to include with your payment. 

CP 297 - Notice Of Intent To Levy And Notice Of Your Right To A Hearing & CP 90 - Final Notice - Notice Of Intent To Levy And Notice Of Your Right To A Hearing

The IRS will send out CP 297 before CP 90. The IRS sends CP 297 to notify you of their intent to levy your accounts and property.  There is a balance due on your tax account and several notifications of the balance due have been sent.

The IRS sends a CP 90 to inform the recipient that the amount is still due, that the IRS intends to levy on certain assets, and what steps you need to take within 30 days to prevent the IRS from taking this action.

CP 91 - Final Notice Before Levy on Social Security Benefits

The IRS sends CP 91 to inform the recipient of our intent to levy on their Social Security Benefits. If payment has not been made, or a payment plan arranged, the IRS will take up to 15% of your Social Security Benefits to pay it, and what steps you need to take within 30 days to prevent this action. 

You should also be aware that you have the right to retain an authorized representative of your choice to represent you in your dealings with the IRS. You do not have to face the IRS alone.  When you receive a notice from the IRS, it is in your best interest to contact a qualified tax professional to represent you in front of the IRS. Either your or your tax representative have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position. Lastly, you are also entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. To see a complete list of your rights, the IRS has provided a "Taxpayer Bill of Rights."

For questions relating to back taxes, collection notices, or any other tax matter, Contact the Tax Office, Inc., for a free, no obligation evaluation of your tax situation.

IRS Estimates 984,400 People Did NOT File Their 2009 Return - Did You?

Author: Keith Huggett 

The IRS is estimating that there are refunds totaling just over $917 million waiting for 984,400 people who did not file their 2009 federal tax return. In order to claim your refund you must file your return before April 15, 2013.  The IRS believes that over half of the refunds will total over $500.  If the money remains unclaimed, it becomes the property of the U.S. Treasury.

In order to receive your refund, however, you will need to be up to date for 2010 and 2011 also. The IRS will also apply your refund to any outstanding tax debt, unpaid child support or past due federal debts such as student loans, before sending it to you.

When you do not file a return, you stand to lose more than just a refund during 2009. In addition, you may have been eligible to claim the Earned Income Tax Credit (EITC). For 2009, the credit is worth as much as $5,657. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2009 were:

$43,279 ($48,279 if married filing jointly) for those with three or more qualifying children,

$40,295 ($45,295 if married filing jointly) for people with two qualifying children,

$35,463 ($40,463 if married filing jointly) for those with one qualifying child, and

$13,440 ($18,440 if married filing jointly) for people without qualifying children.

In California alone, the number of unfiled returns with a potential refunds is 100,700 returns, totalling an estimated $92,590, excluding the EITC and other potential credits.  Now would be a great time to catch up on filing your unfiled back tax returns. Contact us today.

IRS Notices Involving Your Tax Return

Author: Keith Huggett

It's deep into tax time now, and the IRS has been busy processing your returns. During the processing the IRS becomes aware of issues, if any, that arise with your return. It's at this time that certain notifications get sent out via the United States Postal Service. The IRS does not use email to communicate with taxpayers. The IRS has classified their notices by the type of tax form that they refer to. Simply put, any notices involving personal taxes, forms 1040, 1040A, 1040EZ, and their supplemental documentation, schedules, and forms are called individual filer notices. If the forms involved are IRS forms 941, 1065 or 1120 then the notices fall under the business filer category.

The IRS sends out millions of notices every year. Each letter will tell you what the letter is for, and why they are sending it to you. It is important to read these letters as soon as you receive them. The IRS often includes a "respond by" date in these notices. If you do not respond by the given date, it can, and often does, cause issues for you in the future. While receiving that initial notice from the IRS is intimidating, quite often the correspondence is due to a simple question that requires an answer. Your inital actions should be to read the notice, make a copy of it, and send it to your tax preparer for action.

Here are some of the notices you might receive from the IRS:

• CP05A - The IRS is examining your return and requires documentation.
• CP08  - You may qualify for the Additional Child Tax Credit and may be entitled to some additional money. 
• CP09 - The IRS records indicate that you may qualify for the Earned Income Credit but did not claim it.
• CP10 - The IRS has made a change on your tax return because they believe there is a miscalculation affecting your estimated tax payment you wanted applied to your taxes for next year.
• CP11 - The IRS has made a change on your tax return because they believe there is a micalculation affecting your return. You now owe the IRS due to this change.

There are many, many more notices that can be sent out by the IRS. The above lists only a few. The important issue to be aware of is that all of the issues shown above are easily taken care of. While it is true that not all IRS notices are so easy to take care of, if acted upon when first received your tax issue will be less complicated to take care of.

Remember, when dealing with IRS correspondence, following the directions that is provided for you is key to correcting the situation.  Each letter will provide you with the information that the IRS requires from you.  Be prompt in your response. Only give them what they ask for, nothing more or less. Keep copies of the notices for your records.

If you are uncomfortable dealing with the IRS in any way, contact your tax preparer. A professional tax service is ultimately qualified to deal with the IRS for you.  Tax specialists are trained to communicate with the IRS directly in your favor. Should you have any questions regarding IRS notices, contact us, The Tax Office, Inc. We will be happy to assist you.

What Are the IRS Rules for Qualification?

Author: Keith Huggett 

Times are tough all over. The economy is struggling to make a come back. Our paychecks have less in them.  People are having difficulty meeting their tax requirements.  If you happen to be one of those who are struggling with tax debts, you need to act before your tax debts balloon out of control.

In some cases, you have the option of trying to prove to the IRS that your are undergoing a hardship. While we always suggest that you obtain professional assistance when dealing with tax resoltution matters, and in this case, there is no difference, to apply for hardship status, you need to fill out IRS form 433A. This form is used to compile information about the state of your finances, your total monthly expenses for an extremely long list of items including:

• Food & Clothing
• Housing & Utilities
• Vehicle Ownership Costs (lease or ownership payments)
• Vehicle Operating Costs
• Health Insurance
• Child/Dependent Care
• Life Insurance

Also requested is the usual wages, other income, social security, banking information, credit history, etc.

Applying for hardship status isn't an easy process. Having professional tax assistance can help smooth the way with the IRS. Foreknowledge of the IRS rules can also assist you. The IRS sets the average amount for what is spent on basic items like food and clothing. The amount you spend on these basic items should fall below the national average.

Having assets that can be liquidated for ready cash will not help you. If you have such assets you should be paying off your tax debt, rather than applying for hardship status.  

The IRS will also require proof that you are undergoing a hardship. You need to be able to show the IRS that you are really struggling. Providing some kind of relevant documentation to prove your case is required. Did you recently lose your job? Are you limited is some way that prevents you from gaining employment? Keeping a copy of your termination papers and documents proving your ill health can help.

Proving that you are undergoing a hardship is one of the more difficult ways to resolve issues with the IRS. If you are unsuccessful at obtaining hardship status, there are other options available to you. Seeking professional tax assistance to discuss your options when you first receive notices from the IRS is in your best interest. Tax Resolution professionals, like the specialists at The Tax Office, Inc. are highly educated and work with the IRS on a daily basis. They can work with you and the IRS to get the best possible outcome for you.

Remember Al Capone?

Author: Keith Huggett 

Al Capone was found guilty of tax evasion - not paying taxes on his ill gotten wealth, estimated to be worth somewhere around $100 million back in 1927. That would be worth $1.2 billion in today's monetary value. For not paying his taxes, he received a sentence of ten years in federal prison and an additional year to be served in Chicago. He only served seven years and died in 1946. His conviction resulted in criminals and citizens alike paying their back taxes. In 1931, the year Capone was convicted, more than $1 million unpaid taxes were paid to the IRS.

Things have changed a lot since 1931. Now the IRS assesses penalties to your unpaid taxes along with accruing interest.  The longer you go without filing your taxes, the bigger the penalties and interest payment becomes.  

Initial penalties are assessed in one of two ways: Failure to file or failure to pay. Failure to file is assessed by the IRS at a rate of 5% per month or partial month up to a maximum of 25%. Failure to pay is assessed at a rate of 0.5% per month or partial month up to a maximum of 25%. If both penalties are assessed, the failure to file is reduced by the failure to pay.

Penalties get more complex if it is determined that fraud is involved. Criminal fraud, being illegal, will inflict heave fines, imprisonment, or both on the taxpayer.  There is also the possibility of civil fraud, which is also illegal, but not to the same extent as criminal fraud. It's penalties are only 75% of the portion of the tax underpaid attributed to the fraud. Still not worth the risk!

There are also penaltied that are applied for being negligent. THe penalty for not being careful or disregarding the tax rules is 20% of the portion of the underpayments attributable to the negligence. Seems a lot just for missing a few rules.

Filing a frivolous return can also get you into trouble. While you are filing your tax return, you are deliberately leaving out information necessary for filing the return, such as your social security number. The cost of filing frivolous returns is $500 per return. Why waste time sending in false returns?

So what we've learned here is that it is in your best interest to file your tax returns in a timely manner. If tax day is approaching too quickly fo your liking, you always have the option to file an extension. If preparing your taxes is out of your comfort zone, there are many options available to you, among them, seeking professional tax assistance.

If you are already behind the tax 8-ball, there are tax professionals who specialize in back taxes, lien removal, payment plans, and offers in compromise. The IRS may seem like the enemy but they will work with you to correct your situation. With an indication that you are ready to take some action all it requires is a phone call.

Guidance for Individual Tax Issues

Author: Lani Coggins

Have you neglected to file income tax returns, or do you owe the IRS money in the form of back taxes? You must resolve the issue as quickly as possible. As you continue to put it off, the IRS will continue to add penalties and interest and -- at any time -- can commence collection proceedings.

IRS collection methods can include:

• Wage garnishments
• Levies of your bank accounts
• Liens on your property
• Legal proceedings, potentially including a jail sentence

As scary as this may sound, remember that all the IRS really wants is to get its money from you. It would rather not turn this into a situation that threatens the very existence of your company. If it cannot collect from you in full, the agency may be willing to get the amount owed over time, and may even accept less than you actually owe them.

The best way to deal with your IRS issue is to discuss your options with a team of tax professionals, and then let them contact the government on your behalf. Typically speaking, they will file any old returns as quickly as possible to stop the accrual of penalties for your failure to file. Once they have done that, they will work with the IRS to take care of your liability for back taxes. Typical solutions include:

• Paying everything you owe in a lump sum. This will minimize your interest and penalty expense.
• Paying your entire balance through an installment plan. This method lets you make monthly payments on your balance, although it typically means that you pay more, since interest and penalties continue to accrue. (An installment plan can be less expensive than using a credit card to pay your taxes, though.)
• Paying a reduced balance through an "offer in compromise." In certain circumstances, the IRS will agree to clear your debt with a partial payment.
• Eliminating dischargeable tax debts through bankruptcy.

At The Tax Office, we have a lot of experience dealing with the IRS; we can speak their language. We understand the options, and we can help you determine the best one for you. Contact us today, and we'll get this issue resolved -- finally.