Jeffrey: Hi. I’m Jeffrey Schneider, and I’m an enrolled agent, and this is We Got Your Back…Taxes. Today we have Steven Klitzner. He’s an attorney who specializes in what we call alternative collection issues. He basically helps you get out of problems with the IRS. So today we’re going to talk about the different statutes that are out there. There’s 3, 6, unlimited, 10-year, and everybody thinks they’re something different. So let’s talk about the three-year statute first.
Steven: All right. Well, the three-year statute of limitations relates to audits, and the IRS only has three years to audit somebody for the most part. Now, that’s three years after they file a return. Now there are times that they can go beyond that. There’s always exceptions to every rule, Jeff, but if the IRS finds a substantial underreporting of income, they can go back six years, and if they think fraud is involved, they can go back forever. But for most people, three years is the amount of time they should know that the IRS could come back and decide they’ll audit that.
Jeffrey: And the three years is also the same thing with requesting a refund for the most part.
Steven: Right. Yeah, there’s always . . . The great thing about the IRS, and that’s what I love about dealing with the IRS all the time, is because I love playing games, and the IRS is all about rules. You read the rules, you know the rules, you can play the game, and you can be successful. We see this all the time.
Someone comes to me, they say, “I want to file my old returns.” And they file some returns four, five, six years ago, and they should have gotten a refund and they don’t. You can only go back three years to get your refund, and three years if you want to make a claim for a refund after you’ve paid the taxes. So you have to be very careful. People always say, “Well, that’s very unfair,” and maybe it is, because the IRS can go back many years and make you file returns. If you owe money, you’ve got to pay it. But if you’re getting money back, you can only go back the three years.
Jeffrey: And you mentioned the three years or six years. Now you said “material understatement of income,” and there’s a percentage with that. What is that percentage?
Steven: It’s 25%, and we don’t see it happen a lot. Even when the IRS kind of knows that it might be 25%, usually they’re happy with the last three years. You just got to be careful, and what we’re talking about also is underreporting of income. So if someone makes a lot of cash and figures, “Well, cash isn’t income. I can just put that in my pocket,” and the IRS catches them, they can go back six years on something like that.
Jeffrey: We’re not talking about overstating expenses.
Jeffrey: What we have to let our clients understand is that just because the IRS is looking back for six years of underreporting of income, that doesn’t mean you can overvalue your expenses and they’re not going to come after you too.
Steven: Yeah, that’s true. Then you can get into some fraud.
Steven: But let me tell you, when we talk about the IRS going back and we talk about the fraud, the most important thing is that the taxpayer should not talk to the auditor, because I see this happen all the time. The taxpayer goes, meets with the auditor, doesn’t have a representative, and the next thing you know, they start saying this, they start saying that, and all of a sudden the IRS starts looking at fraud. They start going back farther. They hit them with a 75% fraud penalty. So just be very careful out there. Even on the simplest of audits, you need to get some help.
Jeffrey: That’s right, because we can never undo, usually, can never undo what you’ve already done, and I say this almost on every show. That’s why you have a representative, and that three-year statute is called the assessment statute expiration date, which leads me into what is called the CSED. That’s called the collection statute expiration date. That’s an important date too. Let’s talk about that.
Steven: Well, there’s a lot of misconception. Some people come to me and they think the IRS can collect forever. Other people come to me and they say, “Well, the taxes are from 2001. It’s too late. The IRS can’t collect.” Neither one is correct. The IRS has 10 years from the day the return was filed to collect the money on it.
And I just had a gentleman come in yesterday. He brought me some old paperwork. They always bring a stack of envelopes. It’s always unopened.
Steven: Yellow around the edges. You open it up, and this puff of smoke comes out. You take a look at, and I looked at it, and those letters were from 2009, and they talked about his taxes from 2000, 2001. I think it even went back to 1999, and he’s very worried. He’s not worried enough to do something about it before now, but he’s worried enough now. What happened is he’s back in the country. He’s got a job. He knows the IRS will catch up on him.
Well, I took a look at the letters, and I couldn’t give him an answer yet. But I told him I think I’m going to have some good news for him, because what I’ve got to do is I’ve got to get the transcripts from the IRS, and that’ll tell me the answer. I have a feeling the 10-year statute of limitations has run and all of those accounts are zero.
Jeffrey: And for my audience, who’s thinking, “What is he talking about transcripts?” There are several things the IRS has that we, as professionals, can get access to, and those transcripts say the tax return was filed on X date, assessed and that’s usually a self-assessed date, and you count 10 years, give or take a week or two, and from that 10 point, basically the tax falls off.
Steven: Right, as long as it was filed then. Just because it’s 2001, if it was filed in 2007, or if the IRS filed for them in 2007, we’ve got to wait until then.
Now, there are some things that extend the statute of limitations, and when you look at the transcripts that we get from the IRS, we’ll see those things. A lot of folks come to me and, “Boy, it looks like more than 10 years must have run,” but when you look at it, they did an offer in compromise, they did a bankruptcy, they requested a collection due process hearing, they have pending installment agreements, and all of that is going to extend the statute of limitations sometimes by many years.
We see cases where they’re 2003, 2004 returns, and there’s another five or six years left on the statute of limitations because they’ve done certain things. Sometimes they didn’t even know they did things to extend the statute.
So once we see the transcripts, once we take a look at it, there’s not too many things we can say black and white, true and false, but those will give us the actual answer.
Jeffrey: One thing that you mentioned, very quickly, you said the IRS files a return for you. The technical term is called substitute for return. The IRS will prepare a return for you if you haven’t filed, based on information they received — 1099s, W-2s. Let’s talk about these SFRs. What does the IRS do with these SFRs?
Steven: Yeah, what happens is the IRS receives information, and a lot of times if the person doesn’t file a return and all the IRS has is W-2 information, they’re an employee, they had taxes withheld, the computer looks at it and says, “They may not owe us any money.” But if you’re an independent contractor . . .
Jeffrey: But they won’t give you back your refund if . . .
Steven: Well, that’s true. And they won’t return that
Jeffrey: They won’t return that.
Steven: I’ve never seen them prepare a return and send back money. That could happen, but I don’t think it’ll ever happen.
If there’s a big 1099, if someone sells stocks, if someone sells property, there may not be a whole lot of taxable income there, but if you don’t file a return, for instance for stocks, we see this happen all the time, a day trader, or someone who just sold stocks during the year. Maybe they sold $100,000 in stocks. Well, maybe they lost money. If they file a return and they show the IRS, “I lost money,” or “I didn’t make so much,” that’s fine. But if you don’t tell the IRS, they’ll file the return for you, and if they see $100,000 in stock sales, they’ll say, “Well, bought it for zero, sold it for $100,000. You owe us a lot of tax.”
Jeffrey: Because they don’t know what the cost basis is.
Steven: They don’t know. And we’ve seen that, the numbers in the millions. I always feel good. We file correct returns, the IRS will adjust it, and they don’t owe any money, and I always think, “The IRS said we owed millions, and when I got done with them, they owe nothing.” Well the fact is, we just filed correct returns, and they really didn’t owe any money. We can always do that, and we have a very, very high success rate with the IRS accepting correct returns.
Jeffrey: And when you said about millions, and that’s a big thing. I have a lot of clients that may have 22 pages of these 1099-Bs, which are called the broker statements, but they only took maybe $50,000 in actual cash, and they just kept buying, selling, buying, selling, and all of a sudden, when you add up all the gross proceeds, it came out to, like, $1.5 million, and they had losses, so you didn’t have to pay any taxes on them.
Steven: I have this a lot from around the world. It’s funny. I get people that were here in the United States, and they move out of the country, and they didn’t file returns because they thought, “Well, I didn’t make any money,” stock transactions, for instance. They don’t file returns. They don’t even know the IRS is filing returns, because they’ve left the country, and all of a sudden I’ll get a call.
I had one case a couple of years ago. The guy was in Brazil. He flew into Miami to see me. The IRS had just grabbed $3 million out of his brokerage account, and they still wanted another $2 million from stock sales. When we filed the returns, he actually had a loss. We got him all of his money back, but he actually lost money that year.
Jeffrey: And one thing people have to understand, SFRs, these substitute for returns, are usually filed anywhere from two to six years after the return is actually due, so that’s when the 10-year statute starts. It could be starting 16 years later.
In the last minute or so that we have, tell us how people can get in contact with you if they have any real IRS problems.
Steven: All right, yeah. I’m in south Florida. Most of my practice is limited to Florida. I do practice around the country, but most of it’s Florida. Most of it’s in the south Florida area — Dade, Broward, Palm Beach County. My telephone number is 305-682-1118. The website is FloridaTaxSolvers.com, FloridaTaxSolvers, and the email is email@example.com.
I always give people free consultations. I like to meet folks in person. I don’t like to be like those TV ads where you call and you talk to some mystery salesman. They come in and see me. If they can’t, we talk on the phone. The consultation is always free. Put them in the right direction. If it’s a good match, if we can work together, we do it and solve a lot of problems.
Jeffrey: And Steve, as an attorney, also can represent you in court. We’re an enrolled agent. I must say, I can represent you up through tax court, but Steve can take it to the next level, and Steve also teaches, so he’s an expert in this field.
So we’d like to thank you. We’d like to have you back again, because there’s a lot more topics on this issue.
My name is Jeffrey Schneider. I am an enrolled agent, and this is We Got Your Back…Taxes.
Jeffrey: Hi. I’m Jeffrey Schneider, and I am enrolled agent and this is We’ve Got Your Back…Taxes. I welcome back a previous guest, Steven Klitzner. He’s an attorney here in South Florida who deals with alternative collection issues and IRS problems. So he’s the type of person you go to when you have real issues.
In our last segment, we just talked about the different statute of limitations and the three years, six years and so on. We mentioned substitute for returns. We talked about how the IRS, if they have information returns, they’ll file a return for you. But why is that really so bad, other than cost base as we mention about stocks? Why is that really bad?
Steven: Well, it’s bad because they don’t give you any of your real expenses. A lot of people have itemized deductions. They have business expenses. They have a family where they get a better tax break if they file the return. The IRS, they’re not good at filing returns. They’re good at filing returns for them, and they just take the bare basics.
The lesson here is they give people an opportunity to file a correct return. They will send letters. Don’t ignore those letters. You’ve got to get help early and often and you’ll be all right.
Jeffrey: At least open them and read them.
Steven: That’s right. Take a look at the letters. Now, in fairness to some folks, they’ve moved. They haven’t filed a tax return in years. They’ve moved. There’s no forwarding address. They have no idea anything has happened until the IRS finally finds them and sends them collection letters. But the idea is once you find out there’s a problem or could be a problem, immediately get some help, prepare correct returns, and a lot of times that solves the whole problem.
Jeffrey: And you haven’t filed returns in years, even though we mentioned in our last segment you had clients that had issues from ’99 and 2000. I have a client now I’m dealing with. He hasn’t filed a return in 22 years.
Now, he came to me and said, “Oh my god, do you have a program that can file a return for 22 years ago?” I said, “No, don’t worry about it.” The Internal Revenue Manual, which is what we call the IRS’ own Bible or their own playbook, requires, not requires but suggests they only want to go back six years because they don’t have the personnel to do that. So don’t go crazy.
Steven: Occasionally they ask for more. But if they don’t ask, the last six years is fine.
Jeffrey: It’s fine. That’s what they start with and then they open it up. If they think it’s fraud, they may go back for more.
Steven: But usually that’s pretty good. Sometimes we get certain times they want you to fill in the blanks and do more. But basically, you go back six years, you should be good.
I just had a lady in a couple of weeks ago, a young lady, and she hadn’t filed returns in years. She came in so afraid. She got a refund every year. She didn’t even know it. She was just afraid. You can’t be afraid. You’ve got to get help.
Jeffrey: Now let’s talk about what happens if you owe money. This is the real crux of what enrolled agents do in representation and attorneys like Steve. There are basically I would say four ways to deal with collections. One of them you pay it.
Jeffrey: Well then, what happens if you can’t? There are three things. One is called currently non-collectible, CNC. Then there are IAs or installment agreements. And then the big one, offers in compromise.
So let’s start with currently non-collectible. What does that mean?
Steven: It basically means that you convinced the IRS that there’s no way they’re ever going to get the money from you, at least at the present time. So we see that a lot with people unemployed, people that don’t have a lot of income, people that have a lot of expenses. They can be really put in non-collectible. We even have businesses we represent where we show the IRS, “Look, we’re filing all our tax returns now. We’re paying all our taxes now. We’re just not making a profit. Leave us alone for now.”
That can be a permanent fix. Sometimes it’s a temporary fix until the person starts working or the business makes money. But it is a solution. The good news about that, because we talked about statute of limitations last time, 10-year statute of limitations keeps on running. You keep getting toward the end.
Jeffrey: Now, when we talk about CNC, it’s not an end all. You said they look at it again. Now I have a client that’s been in CNC status because his income stayed in the low 40s for the last six years. They do look at it. So all of a sudden if his W-2 this year went up to 105, they’re going to come back and say, “Now, you can pay.”
Jeffrey: So they’ll remove you. So it’s not an end all.
Steven: Yeah. When they put you in non-collectible status — sometimes I call it uncollectible status — when they put you there, they put a code into the transcript saying when the person makes over whatever number they put in, we’re going to look at this again. The IRS is very underfunded now. Sometimes they miss it, but that’s their policy is to come back and say, “Maybe it’s time to start paying us some money.”
Jeffrey: All right. Now let’s look at the next step. Now you say, “Okay. I have a little bit of extra money.” This little bit of extra money has to do with not what you think is a little bit of extra money. There are standards and things we’re not going to get into here, because we could spend hours four hours, which we have. Steve teaches classes, as I said in my last segment, which I’ve attended, and we’ve done four hours just on this.
But let’s just talk about now installment agreements. Now, there are two types. There’s what we call a full pay installment and a partial pay. Please explain that.
Steven: Well, a full pay installment agreement, it’s really like paying off a car. You owe the IRS x-number of dollars. You’re going to pay them x-number or I’ll call it y-number of dollars for the next z-number of years — see how I did that, XYZ — and ultimately the IRS is going to get all their money. Penalties keep going up. Interest keeps going up, but ultimately they’re going to get their money.
Now, some people, let’s give an example. Somebody owes $25,000. They pay $400 a month. In six years, it will all get paid off.
Some people come in, maybe they only have $100 left over. They’re going to pay $100 a month. They’re never going to pay the $25,000. Statute of limitations is ultimately going to run. So that’s a partial pay installment agreement, a little like an offer in compromise, because you’re not going to pay everything off. You’re just going to pay what you can afford every month.
Jeffrey: Now, we’ve all heard and there are all these big box companies say under the fresh start initiative. All that means is that the IRS allows you to do things a little quicker based on certain amounts of money. If you owe, you heard, under $10,000, you don’t need us. You fill out a form. You hand it in. You pay it over 72 months and you’re done.
But what are those other amounts? When do people really have to worry about these types of programs?
Steven: Well, everybody has got a different situation. I have some people that owe $20,000, and it might as well be $1 million. I have other people that owe $200,000 or $300,000. They say, “Look, just buy me a couple of weeks, a couple of months. I’m going to pay the whole thing off.” So everybody’s got a different situation for this.
So it’s tough. The bottom line is this. There are things people can do themselves. They come in and see me. I give a free consultation to folks. Sometimes I just say, “Do this and you’re done with it.” But other times they need us, even on the small stuff. If there’s a lien, we can get the lien withdrawn at the end of the case. If there’s some penalty, we may be able to get some or all of the penalty removed. So there are some things we can do.
But there are folks that you’re right. They make a phone call. They work out a quick payment plan. They owe the IRS $10,000. They pay $200 a month. They don’t need any help, and they get the thing done.
Jeffrey: All right. Now, let’s talk about offer in compromise. That is the big thing. Everybody thinks, “We can get you pennies on the dollar.”
Steven: Oh, you can’t say that anymore.
Jeffrey: And I say it depends on how many pennies.
Steven: You can say that. That’s right.
Jeffrey: It depends upon how many pennies. I had a client that I did 10 pennies on the dollar. We worked on that case I talked about. I have somebody that I did $0.33 on the dollar. I have somebody that’s going to be $1.05 on the dollar, which means he can’t do it. Explain what an offer in compromise is.
Steven: The whole thing behind the offer in compromise is this. You have to convince the IRS they’re never going to get all their money. You have to offer them all of the money they’re ever going to get. That could be $100. That could be $10,000.
So here’s the formula. The formula is quite simple. The application is a little more difficult. The IRS wants 80% of the value of all of your property.
Jeffrey: Unless you’re dead.
Steven: Yes. Some people are upside down. They don’t own the house. That’s not a problem. But if you have equity in your house, that’s got to be part of the picture, because you’re offering them everything they’re ever going to get.
The second thing is they want, for the most part, all your money — your cash, your savings, your IRAs, your 401(k)s. We’re not talking about a couple grand in the bank. We’re talking about a lot of money.
Finally, they want to know how much money you have left over every month. They’ll take that number and multiply it by 12. When we do the numbers, some people don’t qualify and other people, we get them settled for $100. Last year we did two. We settled for $1 each. I’m not going to do it anymore. I want to keep the streak alive, but 2 and 0 on a dollar. So the lowest we go is $100. If that’s all they can pay, that’s it. The IRS will take it.
Jeffrey: Basically, it’s not based on your income and expenses. It’s your income, but then the IRS tells you what your expenses are, based on where you live, and those are called national standards.
Steven: Right. You want to make a deal, you’ve got to live by our standards. Here are our standards. If you can make the deal, fine. But if you’ve got a $4,000 or $5,000 rent and utilities, they’re just not going to allow that. They’re going to have their standards that they’re going to allow. We still get a lot of people that qualify for it and we can make some great deals for them.
Jeffrey: That being said, in the last segment, it’s not all black and white either. There are some negotiations at play in all of this. There are some things you can manipulate, so to speak.
Steven: Right. A lot of people say, “Just call them and see if they’ll take this.” No, it doesn’t work that way. Everything is very formal. But sure, there’s some advocacy. That’s one of the things. It’s very difficult for an individual to do is an offer in compromise on themselves, too many variables.
Jeffrey: Okay. In our last part, please tell everybody where they can get in contact with you.
Steven: All right. Good. I’m Steve Klitzner. I’m a tax attorney in the North Miami area and Aventura area, and I practice all around the state. My number is 305-682-1118. My website is FloridaTaxSolvers.com. The email is help@FloridaTaxSolvers.com. Everybody gets a free consultation in person, on the telephone. If I can help you, I’ll tell you I can help you. If I can’t, I’ll just tell you what you need to do and I’ll send you on your way.
Jeffrey: It’s very important for our listeners to understand that it is a very complex issue, these alternative collections. You should not do it alone. Even if you’re doing a basic, you need to talk to somebody, even for the free consultation, just to get your information.
I really appreciate you telling us about all this and helping us. I hope you come back again.
Again, my name is Jeffrey Schneider. I am an enrolled agent, and this is We’ve Got Your Back… Taxes. Until next time, see you.
I’m tax attorney Steve Klitzner. I help individuals and businesses that have IRS problems. You know, I think the biggest fear that my prospective clients have, when they call me for the first time or when they visit me for the first time, is, “Do I have to talk to the IRS?” The answer is, “Not if I represent you.”
You see, if I have a power of attorney, I stand in your shoes. The IRS has to go through me. And as long as I can answer all their questions on your behalf, they’re not allowed to talk to you. This is a big advantage to having someone represent you for your IRS problems, because, not that we’re ever not going to tell the IRS the truth, it’s pretty scary, though, talking to those people.
So if you have any problems with the IRS, feel free to give me a call. We can talk on the phone, we can meet in person. The consultation’s free. I’m tax attorney Steve Klitzner. Until next time.
I’m tax attorney Steve Klitzner, and almost every day I speak to someone that I haven’t spoken to before about their IRS problem. Very often they ask me the question, “How long have you been doing this work? Have you always represented folks with IRS problems?”
Well, the answer is no. Many years ago, when I first became a lawyer, I was a trial attorney. I represented individuals who got hurt, personal injury claims, and I could recover money for them, compensation for their injuries. But there was one thing missing. I couldn’t really make them better. Now, I can make a difference.
Ever since, way back at the turn of the century, in the year 2000, that I started representing folks with IRS problems, I’ve been able to make a difference in people’s lives, end their IRS problems, have them not be looking over their shoulder their whole life and get back to living a good life and enjoying themselves.
If you have any questions, if I can help you, give me a call. The consultation’s always free. Until next time, I’m tax attorney Steve Klitzner.
I’m tax attorney Steve Klitzner. I help people with IRS problems. Folks come to me all the time with unfiled returns. You know, I’d estimate about 85% of the people that I see have at least one unfiled return. And they ask the same question, “How am I going to know how to file a return? I have no idea how much money I earned in those years.”
Well fortunately, I can go ahead, order the transcripts from the IRS with my Power of Attorney, and find out through the wage and income transcripts exactly how much money was reported to the IRS that you earned in those years. With those numbers, I can start getting together tax returns for you, so that we can send them into the IRS and begin the process of ending the IRS problems, because here’s something a lot of people don’t know. If you don’t file the returns, the IRS may file them for you, and they’re not very good at doing tax returns. They don’t give you the deductions you’re entitled to. They’re not going to give you the exemptions you’re entitled to. Very often, it will cost you a lot more money to have the IRS do the work that we can get done for you.
If you have any questions on this, give me a call. Consultation is free. Until next time, I’m tax attorney Steve Klitzner.
I’m tax attorney Steve Klitzner. When I meet with a new prospective client, after we talk for a little while and I go over some of the options, I very often hear this question: Is this going to go on forever? How long can the IRS collect for?
Well, the good news is there’s a statute of limitations. The IRS has to collect the money within 10 years of when they assess it against you, or it’s done. You don’t owe any money. Now the IRS can, and very seldom does, file a lawsuit to perfect their judgment, and then they can collect another 20 years. But for the most part, 10 years is the period of time.
There are some things that can be done, whether intentional or unintentional, that can extend that period of time. But once that statute of limitations is over, the taxpayer is free of any IRS obligations.
One of the things I do when I meet with somebody is I get the transcripts right away. I do a calculation, and I can tell you to the day when the IRS problems go away.
I’m tax attorney Steve Klitzner. Until next time, if you have any questions, please give me a call.
I’m tax attorney Steve Klitzner, and I represent people in businesses with IRS problem. Here’s a question I get often. “Can I discharge my taxes in bankruptcy?”
You may be able to. If it’s individual 1040 income tax and the returns are due more than 3 years ago and have been filed for at least 2 years, you might be eligible to have your taxes discharged in bankruptcy. What we do on these type of cases is the very first thing is I get the transcripts from the IRS. I can run an analysis to tell you whether or not your taxes are dischargeable. If they are, bankruptcy might be the best way to go. If not, there are other programs available that we can help you with.
I’m tax attorney Steve Klitzner. If you have any other questions on this subject, give me a call. Consultation is free.
Give us a call. The consultation with me, personally, is always free. Till next time, I’m tax attorney Steve Klitzner.
I’m tax attorney Steve Klitzner. I represent individuals and businesses that have IRS problems. One of my favorite questions I hear from friends, family, clients, prospective clients is, “We see those ads on TV about IRS problems. Are those for real?”
Well, yes, they are. But a lot of times, no, they’re not. You see, if you get those commercials and you put them on your DVR and you freeze the last frame — try to get it into focus, because very often it’s out of focus — you’ll see that only people who qualify for the offer and compromise program can settle their cases for less. Some people can settle a $100,000 debt for as low as $100. Others may owe $50,000 and they can’t settle it for a penny less.
Every case is different. If you qualify, you could really end your IRS problems forever.
I’m tax attorney Steve Klitzner. As always, if you have any questions, give me a call. The consultation is always free.
I’m tax attorney Steve Klitzner. It’s my job to protect folks with IRS
problems and to exercise their rights. Now a question that is often asked
of me is, “What is a federal tax lien?” Part two to the question is, “How
do I get rid of it?”
Well, first of all, a federal tax lien is what the IRS files in the county
where you live that’ll protect their interest. If you have any assets or
any property, it’ll attach to that property. It’ll also mess up your credit
pretty good. Sometimes it can lower it by 75 to 100 points.
Now there are some ways to get rid of a federal tax lien. In certain
hardship circumstances we can do it. But other than that, if we can get
your balance down to a certain amount of money, or if we get the tax paid,
I can get than lien withdrawn. Not just released, but withdrawn as if it
never existed. So we can restore your credit.
Give us a call. The consultation with me, personally, is always free. Till
next time, I’m tax attorney Steve Klitzner.
As tax season quickly approaches, many households across the country are beginning to gather up their relevant documents and plan their deductions. Filing taxes each year can be stressful. Errors can result in hefty penalties from the IRS and failing to properly document all deductions can cause people to have a much higher tax bill than they should. Here are the top ten tips to help people avoid making errors this year on their tax returns.
Those who know that they are going to be in the same or a lower tax bracket next year should consider delaying income, such as bonuses, until January to avoid extra taxes at least for this year.
Entering the wrong direct deposit number is depressingly common. Make sure that all numbers are entered correctly to avoid accidentally donating a refund or having it get completely lost.
While most people know that charitable donations are tax deductible, many do not realize that the type of donation makes a difference. For example, a donation of land can help people get the standard donation based upon the value of the land and help them avoid taxes on the profit.
Those who do work as a contractor need to be sure that they accurately tally all 1099 forms that they have received. The IRS also has a copy of these forms, and failure to properly declare income can result in a higher tax bill or even interest on the owed tax if the error is not discovered right away.
Those who have invested a considerable amount of money should consider speaking with a financial adviser or tax professional about selling the loser investments to offset investment gains. This can help lower the tax bill.
Everyone should be contributing the maximum amount to their retirement accounts, such as the 401(k) and Roth IRA.
This is another surprisingly common error. A social security number is vital for connecting all the records the IRS has on a person, so accidentally writing in the wrong number, or forgetting to write it all together, can drastically slow down a refund or even cause problems with the IRS.
Some people try to save money on their taxes while saving for a child’s education by placing investments in a child’s name, since these are not taxed at the same rate. Be careful, though, because once the child’s investments earn more than $2000, they are taxed the same as adults.
It might sound basic, but it is the most common mistake on a tax return. The problems it can cause range from not getting a full refund to having the IRS charge interest on unpaid taxes because of an incorrect income declaration.
The federal government offers a range of deductions for various ‘green’ investments, such as a new washer or windows. These appliances and fixtures not only upgrade the home, they also can count towards tax deductions.
Filing a tax return involves avoiding errors while also finding ways to maximize the potential refund. Taking the time to review these ten tips should help anyone avoid potential mistakes from years past and keep any difficulties with the IRS at bay.
Tax season is fast approaching, and so is the dread that goes along with it. While the tax code may seem like an endless collection of complicated regulations, lengthy forms, and confusing deadline, getting through tax season can actually be quite easy. All you need to do is carefully and methodically tackle each step of the process before moving on to the next step.
While you can start planning for tax season in December or January, you won’t be able to come up with more than a rough estimate until February. This is because employers have until January 31st to issue the forms that state your final income — W-2s for salaried employees and 1099s for independent contractors. Until then, you may want to start gathering your receipts for charitable donations, business expenses, and any other deductions you plan to claim.
Whether you like the Affordable Care Act or not, 2014 is the year it starts affecting your taxes. If you don’t have health coverage in 2014, you will be faced with a tax penalty. While this doesn’t affect your 2013 taxes, eligibility for subsidies is based on your 2013 income, and the enrollment period occurs during tax season. If you aren’t already on your employer’s plan, you have until March 31st to sign up for health coverage.
The IRS generally imposes a penalty if you owe more than $1,000 in taxes when you file your return. This usually isn’t a problem for salaried employees, who generally have their withholding set to high. If you are self-employed, have a small business, or have some other source of side income, you may need to pay estimated taxes to avoid a penalty. It’s too late for 2013, but find out if you’re paying enough now because the first estimated tax deadline for 2014 is April 15th.
Filing your taxes late can bring substantial penalties and interest charges. No matter how busy you are, make sure your tax return is in the mail by April 15th (March 17th for corporations) or you request the automatic six month extension. The deadline to pay your taxes is the same. If you’re unable to pay them in full, don’t delay filing — you’ll still be charged interest, but the late filing penalty won’t apply. Note: The six month filing extension does not extend the time you have to pay and any payments made after April 15th may be subject to interest even if you had a filing extension.
With tax season upon us and the government shut down looming in the rear view mirror, it may seem that tax payers are in for another surprise. With the 2014 tax season it is now more important than ever that tax payers be ready to face the changes and understand how they affect their own taxes.
Those small business owners are going to be hardest hit when taxes come around. One change that has the most buzz is of course the increase in tax rate for the top federal wage. The top rate has made a drastic jump from 35% all the way up to nearly 40% hovering around 39.6%. This could be a huge increase for some business owners. Those that make $400,000 as an individual and those that make $450,000 as a married couple will be taxed at the highest rate possible while those in the lower bracket may still be affected by the change. On top of the rate increase, small business owners will also have to contend with an upturn on the capital gains rate as well if they fall into the highest of the tax brackets. The rate has increased from 15% to 20%. Even more, some business owners may also have to contend with a new Medicare tax that could leave them reeling.
Another change that has popped up is the increase in standard deductions. Deductions were once $12,200 to $12,400 for married couples and $6,100 to $6,200 for single filers. This means that while it may seem easier to take the standard deduction, it may save more money and garner a larger return if deductions are itemized. These changes to standard deductions may affect your personal taxes and then again they may not. Taking the time to learn about the changes is the best way to determine if they are going to affect you.
Those that claim the earned income tax credit will be happy to know that the maximum credit has gone from $6,044 to $6,143. This means that those that are using the credit to help increase their tax return and to help make up for earning deficits during the year can now claim more on their taxes. A few other changes include an increase in personal exemptions ($3,900 to $3,950) and there will be various limits on itemized deductions that can be claimed.
All these changes are unique to each person filing. It is important that before filing, tax payers take the time to really look at what they are planning on putting on their return. It may be beneficial for those filing to take a moment to review all the new tax laws in an effort to familiarize themselves with the changes and to truly begin to understand how these changes affect them. It may even be beneficial to talk to a tax professional to learn a bit more about these changes.
The United States Supreme Court refused to hear a case brought by Amazon and Overstock.com challenging a 2008 New York law requiring online retailers to collect sales tax on purchases by New York State residents. The online retailers had argued that given the number of local jurisdictions with different sales tax rates, the law was overly complicated, unduly burdensome, and restricted the growth of online commerce. The law was upheld by New York’s highest court before the challenge was brought to the Supreme Court.
New York’s ruling went beyond a 1992 U.S. Supreme Court ruling requiring online retailers to collect sales tax in states where they have a physical presence. Under that rule, a retailer needed to have a physical store or office in a state to be required to collect sales tax. New York’s law included marketing efforts directed at a state and used affiliate marketing as a basis for establishing the company’s presence in a state.
In affiliate marketing, marketers are paid a commission on purchases made after a customer clicks a link from the affiliate’s site. Affiliates often consist of small websites with little oversight by the online retailer.
New York said the goal of its law was to restore a competitive balance between online and brick-and-mortar retailers. Many states have similar laws, and although the states that collect sales tax require residents to pay tax on online purchases, the reality is that if the sales tax is not collected at purchase, the residents do not later pay it.
By declining the case, the Supreme Court allowed all states to continue making their own laws regarding the collection of sales tax online. Congress could use its powers to regulate interstate commerce to enact changes, but appears inclined to allow states to pass their own laws. Earlier this year, the Senate passed legislation making it easier for states to collect sales tax on online purchases.
The court’s ruling leaves online retailers across the country faced with processing sales tax for every jurisdiction that collect sales tax. With tax rates differing by county or municipality, this is no easy task. Zip codes often span multiple sales tax rate zones, and there is no easy way for online retailers to determine the proper tax rate. Even if the location could be accurately determined, online retailers would still be required to pay each entity as well as keep up with any rate changes or tax holidays.
Consumers can expect to pay sales tax on all online purchases in the near future. With the largest retailers, such as Amazon and Overstock, already charging sales tax, “tax-free” options are fast disappearing. New laws making the collection of sales tax easier would eliminate any argument against requiring smaller retailers to also charge sales tax. The only good news may be that if the laws become widespread, consumers won’t have to fear that retailers might refuse to service their state because its laws are too strict.
If you’ve never been through an IRS tax audit, you probably have some common misconceptions about what actually triggers an audit. Ask ten people what they think would cause an IRS audit and you would probably get ten different answers. Therefore, we thought we would take a few minutes to clear up a few common myths and misconceptions about what does and does not trigger an IRS audit.
The process in which the IRS determines which returns should be audited has nothing to do with the way you chose to file your return. E-filing could actually reduce the chances that your return will be audited due to the fact that electronically filed returns are usually more accurate; therefore, if you e-file, your tax return is less likely to trigger an IRS audit.
Many people believe that their Social Security benefits are not taxable. However, that’s not always the case. There are certain income levels that, if exceeded, will require the taxes to be paid. If the bulk of your retirement income is from your Social Security benefits, you won’t have to pay taxes. However, if you receive income from other sources as well, up to 85% of your social security benefits could be taxed.
Some people believe that if they file for an extension, they will draw attention to themselves. Extensions were designed to give taxpayers, who file an extension, an additional six months to complete their returns. There’s no definitive proof that filing an extension triggers an IRS audit. Additionally, it’s possible that filing an extension could actually lessen the likelihood of an audit because you won’t be as rushed to complete your taxes and therefore fewer errors are likely to be made.
Unfortunately, this is not true. Everyone must pay their taxes by April 15; otherwise, you will have to pay interest and penalties. You can pay your taxes by estimating what you anticipate owing then you need to go ahead and submit your estimated tax payment for that amount. This payment should be included with your file extension request and it should be submitted on or before April 15.
Due to the ever-increasing tax laws and the fact that they’re so difficult to understand, it’s no wonder there’s so much confusion. And that’s exactly how myths and misconceptions get started. When it comes to your taxes, it’s imperative that you understand what’s required of you. The best thing to do if you don’t understand what your rights and responsibilities are is to contact a professional tax consultant and pay for a private consultation or you can call the IRS directly. But whatever you do, don’t assume you know what’s right and what’s wrong. You need to be sure.