Category Archives: Individual Taxes

Taxes 2018: How The New Tax Law Will Impact Your Return

The biggest tax story in recent memory was the passage of the Tax Cuts and Jobs Act, which President Trump signed into law on Dec. 22, 2017. The new law creates several notable changes to withholding policies, the standard deduction, personal exemptions, the child tax credit and more. As we head toward the end of the year (and the beginning of tax season), we thought a tax reform primer is in order. Here’s what you need to know to prepare for next year’s filing.

Withholding

Many taxpayers’ withholding requirements were reduced in early 2018, enabling folks to keep more money from their paychecks throughout the year. However, this may mean a smaller refund than normal, or even an unanticipated tax bill next April. If you did not adjust your withholding after the requirements changed, you may be impacted and will want to keep this in mind when preparing your tax return next year.

To find out where you stand with these changes, you can use the IRS Withholding Calculator to perform a Paycheck Checkup, which will help you determine if you should adjust your withholding or make estimated or additional tax payments now. Use the results from the calculator to submit a new Form W-4 (Employee’s Withholding Allowance Certificate) to your employer.

Refunds

In addition, there are changes to the standard deduction, a suspension of some personal exemptions, an increase in the child tax credit, new credits for other dependents and new limits to (or the complete elimination of) certain other deductions. Be certain to research these changes if they impact your taxes to ensure you are complying with all new regulations. And keep in mind that your refund may be different (or you may even owe the IRS) as a result of these changes. If you anticipate getting a refund, remember that some refunds cannot be issued before mid-February 2019 (particularly those refunds that claim the Earned Income Tax Credit or the Additional Child Tax Credit).

A shorter tax form

The Form 1040 for tax year 2018 is shorter and replaces the current Form 1040, Form 1040A and the Form 1040EZ. The new Form 1040 can be supplemented with up to six additional schedules if needed. If you prepare and file your own taxes electronically, you must sign and validate your electronic tax return by entering your prior-year Adjusted Gross Income or your prior-year Self-Select PIN.

Get the whole story

Since the Tax Cuts and Jobs Act became law, the IRS has been working with tax return professionals and tax software developers to implement the new law and ensure taxpayers can rely upon these services for accurate information. To uncover how the law might impact you and your family, the IRS has created a new publication, Tax Reform Basics for Individuals and Families, which provides a complete overview of everything you need to know.

Is the IRS Allowing Private Collection Agencies to Bully Low Income Taxpayers?

The National Taxpayer Advocate’s 2017 Annual Report to Congress suggests that the IRS has done little to protect vulnerable taxpayers from its private debt collection initiative.  The main vulnerability comes from private collection agencies setting up repayment terms that fell within the streamlined guidelines, which taxpayers can obtain without submitting financial information.IRS - file cabinet label

Often, a streamlined repayment option puts the debtor in a situation where the payments are more than they can afford.  While the IRS offers repayment options that are based on the ability to pay, the report found private collection agencies are pushing for repayment based only on streamlined conditions.

It is important to know that like most debts, when back taxes are owed to the IRS, you can find a repayment option that does not amount to paying the liability in full.  If you have fallen upon hard times or are simply facing a debt that is beyond your means, completing a financial information statement is the first step in determining your eligibility for alternative repayment options.

At 20/20, we believe our team of Enrolled Agents provides the best representation money can buy.  We work with taxpayers to regain their footing and develop a resolution that works for them.  At the same time, we recognize that there are many who simply cannot afford to hire a representative for themselves.  In these cases, it is important to know that there are Low Income Taxpayer Clinics. According to their website, “Each clinic determines whether prospective clients meet income guidelines and other criteria before agreeing to represent them or provide consultation services.”  If you feel you might be a candidate for their assistance, we encourage you to reach out and ask for help.  In the event you don’t qualify, contact us and see how we can help.  Ultimately, the difference in going it alone versus having representation could be a costly one.

A Perfect Storm

The 2000 film, “The Perfect Storm”, details the harrowing events of the fishing vessel, Andrea Gail. In the film, the ship and crew were lost at sea as a result of numerous weather elements coming together to form a force of nature that was unstoppable. A similar storm may be forming with respect to the enforcement and collection of unpaid payroll taxes.

A year ago, the Treasury Inspector General For Tax Administration (“TIGTA”) published a report in which they indicated a greater need for a focused strategy in effectively addressing egregious employment tax crimes. In the report, TIGTA recommended that criminal prosecution be sought by the Department of Justice more frequently to create a greater general deterrent.

Additionally, on March 2nd 2018, Deputy U.S. Attorney General Rod Rosenstein stated that the Trump administration would vigorously pursue offenders that fail to pay payroll taxes. The criminal offense associated with failing to pay payroll taxes is set out by 26 U.S.C.§ 7202. It states that “Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”Boat in Pond

These reports and comments are typically heard as rhetoric intended to encourage compliance, however a recent case from Wisconsin brings potential for concern. While prosecution rarely happens for minor offenses of 26 U.S.C.§ 7202, a Wisconsin business owner, Gary Auerswald, was recently targeted for prosecution by the US Attorney from the Western District of Wisconsin.  What makes the case unique is that the amount in question was only $24,482.43 and only for the 4th quarter of 2014. While there may be more to the story that is unknown, this may also be the start of the crackdown Rosenstein spoke of.

One thing is for certain; there has never been a more important time to get in front of back taxes, especially unpaid and unfiled payroll taxes. If you think your business may have delinquencies, do not hesitate to contact us and see how we can help you get out in front of any delinquencies and not be another target for the US Attorney to prosecute.

Tax Liens & Credit Reports: Will you benefit with a higher credit score?

Do you have a tax lien?  If so, how it impacts your credit profile may soon change.

The three major credit reporting agencies (TransUnion, Equifax, & Experian) have come to the realization that they cannot include tax lien information on consumer credit reports and still be in compliance with the Fair Credit Reporting Act, 15 U.S.C. § 1681 (“FCRA”).  The FCRA requires credit reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates”.  Simply put, credit reporting agencies have found it too costly to accurately report tax liens on consumer reports and will therefore no longer include this information beginning April 2018.Wooden Gavel

It is important to understand how a tax lien impacts your financial profile to determine whether this new development will benefit you.

Credit reporting agencies compile data and then this data is used to formulate your FICO score.  The FICO score was developed in 1956 by Bill Fair and Earl Isaac, to measure consumer credit risk and is used by most financial institutions to make decisions on whether to furnish or deny credit.  Since your FICO score is based off of reporting by the three major credit bureaus that will no longer include tax liens, it is likely you may see an increase in your credit score.  Depending on the type of credit you are seeking, your FICO score can play a major role in determining the cost and amount of credit you are eligible for.  If you received credit of any type while you had a tax lien on your credit report, you may want to consider talking with your lender to see if you are eligible for a rate reduction.  They will likely pull a new credit report and that report should no longer include your tax lien, thereby increasing your score and reducing your credit risk.  This is likely to work with loans that involve a less intensive underwriting process.

Loans that are typically reviewed with greater scrutiny (e.g. mortgages) may not be impacted in any way as a result of this new development.  Lenders will still be privy to tax lien information if they seek it out specifically.  Companies such as LexisNexis offer reports on liens and judgments and claim to be accurate on over 99% of their reports.  If your lender specifically seeks out this data, the removal on your credit report will likely have zero impact on your ability to secure or renegotiate a loan.

If a tax lien is still creating problems for you, there are permanent solutions to find relief.

Form 12277 must be filed with the IRS in order to request a tax lien be withdrawn and no longer reported anywhere.  While anyone can file Form 12277, the filing begins a formal review process that is most successful when navigated by a seasoned tax professional.  At 20/20, we have an excellent track record of formally having tax liens withdrawn.  Please contact us for a consultation to discuss the merits of your tax lien and how we can assist you in obtaining a formal withdrawal.

 

Tax Tip: What to do post resolution

Whew! You made it through to the other side! Congratulations on navigating the difficult maze of regulations, processes and emotions to successfully finalize a resolution to your tax problems. Time to relax, forget about the past and move on to a better future, right?

Well, not exactly. During 20/20’s two decades of working with clients, we’ve seen the pitfalls that can await taxpayers on the other side of the resolution process. We strongly advocate that our clients create a “post-resolution plan” to help them steer clear of future problems. Without a thoughtful approach to your new reality, the chances of needing additional help down the road increases.

The first step is to make certain you understand all aspects of your resolution, any payment plan that may be in place, the expected duration of the plan and – perhaps most important – how you will pay it. Don’t wait until your first payment is due to fully comprehend everything you agreed to in the resolution. Delaying this step is what typically leads to a first mistake: missing a payment (something you don’t want to do).

To avoid missing any payment deadlines, consider scheduling a direct deposit. If you choose to use traditional U.S. mail for your payments, remember that each payment must be received by the actual due date. Unlike filing a tax return, payments are not considered to be on time by their postmark. If you opt for snail mail, make certain to leave enough time for the post office to punctually deliver the payment.

A lot of managing your resolution just comes down to staying on top of it and identifying problems before they occur. At 20/20, we have been very successful at setting up manageable resolutions for clients for 20 years. We’ve found that very often, the root cause of problems can be traced back to a taxpayer’s individual habits, business practices or organizational skills.

While some businesses struggle to stay current due to genuine financial hardship, we often see business owners and officers neglect to establish effective business practices. One of the most effective ways to ensure compliance is to engage the services of a payroll firm. At 20/20, we partner with payroll and sales tax solutions in order to assist our clients in developing good and effective business practices. It’s important to make an honest assessment of your business and lifestyle to see if these solutions are right for you and your company.

Ask yourself the tough questions: Is your business undercapitalized? Are you overspending? Are there lifestyle changes you should consider to help keep you on better financial track? All of these are important considerations to study to keep you moving forward and avoid future tax problems.

Light at the end of the TunnelFinally, now that you have what probably feels like a new lease on life, don’t take it for granted. Keep vigilant on your resolution and be proactive if and when you have any problems surrounding the payment terms. Remember that communication is key to staving off future issues with the IRS or other tax authorities. Don’t hesitate to speak up when problems arise.

If you’re still concerned about the ability to successfully manage your resolution and steer clear of future problems, 20/20 offers a monitoring program called POA+. POA+ is a monthly, pay-as-you-go service that allows 20/20 to maintain an active role in your tax resolution plan. Our team will be able to receive and monitor notices from the taxing authorities to promptly address issues that arise as well as remain available to answer questions.

However you proceed, enjoy the relief that comes from knowing you are managing your tax obligations and taking the best care of your business. And be certain to stay on top of your resolution requirements! If things ever get out of hand again, remember that 20/20 is here to help.

Tax Pros: Help Your Client Understand the Options

The most common resolution for a taxpayer facing an unpaid tax liability with the Internal Revenue Service (IRS) is an installment agreement.  And yet despite the fact that it is the most widely used resolution, the installment agreement is still often mired in a debate between fact and fiction. Let’s get to the bottom of some of the IRS installment agreement options so we can guide taxpayers on the road to success.

Before getting into the details of IRS installment agreements, let’s make an important distinction about tax types. Individual income tax has the most flexibility when dealing with the IRS. Unpaid employment taxes, on the other hand, are heavily scrutinized by the IRS and more often have resolutions based on strict expense standards and a determination of ability to pay. In this discussion let’s focus on the individual and more standard opportunities.

As I just noted some IRS installment agreements are based on ability to pay. Other, more routine agreements, are often referred to as streamlined because of the ease of processing involved in setting them up. These can be based strictly on the amount owed and set up over a defined period of time. Routine agreements are great considerations for taxpayers that are in compliance, have few complications and can afford to pay the predetermined amount.

Having the knowledge of the various types of basic IRS agreements is a great starting point for resolving a taxpayer’s unpaid liability. But, it’s just that, a starting point. The agreements should not be misconstrued as the taxpayers only alternative, rather a possible path of least resistance. And as straight forward as these agreements are, a practitioner eyeing the long term success of the agreement needs to consider much more. There are many considerations that should come in to play when thinking about whether to enter into a repayment plan with the IRS. Here are just a few thoughts to consider:

  1. Has a Notice of Federal Tax Lien already been filed against the taxpayer? This is typically done fairly early on the collection process. If it has not been done there is a good chance that the lien can be deferred by entering into a streamlined agreement.
  2. Can the taxpayer afford the amount that will be required by the agreement? If not, entering into a streamlined agreement will result in a default.
  3. Is an installment agreement the appropriate strategy based on the circumstances? Absent any pressure from the IRS, the taxpayer may be better served by going through other channels especially if there is a doubt as to whether the tax is really owed.
  4. Is the timing right? Imagine a scenario in which the taxpayer owes for 2014-2016. Before entering into an agreement for those years one must consider the implications of 2017 and 2018.

In the end, the mere existence and availability of these streamlined agreements does not mean they are the appropriate resolution to the tax liability. Although the IRS might prefer that a taxpayer simply walk in to one of the easy offerings it is important for a tax practitioner to evaluate the totality of the taxpayer’s circumstances to properly put together an effective, winning strategy.

[INFOGRAPHIC] NEW YEARS RESOLUTION: PLAN NOW FOR 2018

According to IRS data, nearly one third of Americans wait until the last minute to file their taxes. With numbers that high, it’s no surprise that our clients are often a part of that percentage. The delay is primarily due to insufficient preparation – and the dread that comes from facing all the paperwork scattered throughout your office. But it doesn’t have to be this way.

Here are the most important things you should resolve to do NOW to ensure you are setting yourself up for a successful year.

Questions about your unique situation? Learn more about ways we can help or feel free to contact us at any time!

2017 Year in Review: Top Tax News

No matter your perspective on the recent passage of tax reform, there’s no question it is the biggest tax story of the year – and perhaps of the decade. The estimated $1.5 trillion bill is being touted as the savior of the middle class and simultaneously denounced as just another exercise in trickle-down economics. Time will tell how the expansive bill shakes up the economy, but with provisions impacting everything from health care to the standard deduction, the reform is sure to impact just about every American in some way.

Business man holding TAX on blurred abstract background

The rest of 2017’s tax stories are not quite as dramatic, but important nonetheless. Here’s a rundown of the top tax news of the year:

  • Employment taxes: The IRS stepped up efforts to combat delinquent employment taxes in the wake of a scathing report in May from the Treasury Inspector General for Tax Administration. The IRS watchdogs reported that the number and size of payroll tax violations is going up, and IRS penalties alone have not been enough to stop the trend. Although the willful failure to remit employment taxes is a felony, there have historically been fewer than 100 criminal convictions per year.
  • Use of private debt collectors: In June it was announced that the IRS began using private debt collectors to try and recoup overdue money owed the government. The IRS program engages four private-sector collection agencies to pursue the toughest debt. Generally these are cases where money has been owed for multiple years and the case is not currently being worked by federal employees.
  • Tax reform impact on delinquent taxes: A change in pass-through taxation, which impacts taxpayers who have some or all of their business income taxed on their individual return, could aid S corporations, LLCs, partnerships and sole proprieterships. As a result, these entities might have fewer challenges meeting their tax obligations. However, tax reform is not expected to have a major impact on tax resolution needs. As always, “life happens” so some people will owe – and some of those people will inevitably need tax resolution services.

The biggest story of the year may be that nothing really changes. The need to have a solid tax plan in place for individuals and businesses is still essential. Be certain to plan ahead for tax obligations, monitor your business throughout the year to guard against revenue ebbs and flows – and make certain you always have a plan to pay.

Happy New Year to you and yours, and best wishes for a profitable 2018!

Top Five Concerns of People Facing IRS Action

You’ve received a letter from the IRS telling you there’s a problem with your taxes. You’re not entirely clear on what the letter means. Yet you are sweating a little. You’re nervous about what happens and what steps you should take next. You’re anxious and are tempted to ignore it all.

Here’s your first step: DO NOT IGNORE THE IRS NOTICE. For your next step, read the following concerns that 20/20 most often hears from clients calling our office for the first time. With our 19 years of experience helping people overcome tax difficulties, we’ve heard just about every concern. Here are the top five concerns common to our clients. Taking Notes

1. Aggressive enforcement and liens

People who speak with 20/20 agents overwhelmingly express fear that the IRS wants payment immediately and by any way possible. Taxpayers want protection from aggressive enforcement actions like bank levies, accounts receivables levies, wage garnishments and asset seizure. While every person’s case is unique, we have a variety of tools we can use to intercede and ensure that these extreme IRS actions are avoided. In nearly every case, we are able to use these tools to give clients the time and space they need to establish compliance and form a strategy to meeting their tax obligations.

2. Difficulty dealing with or communicating with the IRS

It’s not surprising that the second most-frequent concern we hear is that resolving this issue will require inordinate amounts of time, effort and frustration. Who hasn’t sat on hold trying to reach an account service representative? Taxpayers envision a customer service nightmare multiplied tenfold by government inefficiency. Because we work with the IRS all the time, we’re familiar with the agency’s communications processes and we know how to reach the right person to get the right information. We take over communication and do it for the taxpayer, freeing them up to run their business – and their life.

3. Revenue officer showing up at place of business and employees or others finding out about liability

While the IRS is stepping up enforcement and collection efforts of unpaid or delinquent taxes (particularly employment taxes), the agency does work to respect and protect a taxpayer’s privacy. However, in a busy office where documentation and information is shared widely, it’s entirely possible that some news about tax issues may filter out to others. But any employee or other individual will feel less anxious when they know a qualified, experienced tax resolution company like 20/20 is working on the case. The alternative is to have employees or others worry that nothing is being done to manage the liability.

4. Debt to IRS growing out of control (penalties and interest accrual)

There are very few ways to avoid having to pay interest when a tax obligation is delinquent. However, 20/20 can make certain that all obligations, interest and even any penalties will be the least amount allowable under the law. The bottom line: Doing something to resolve the situation is always better than doing nothing.

5. Getting a good and manageable resolution.

Finally, 20/20 clients are worried about achieving a fair, manageable resolution that won’t break the bank and will alleviate their worries. Fortunately, we’ve been helping clients achieve this goal for almost 20 years so we can say with confidence that we can help most taxpayers. We’ll use our experience to obtain the best resolution available under your specific circumstances.

While reactions to potential IRS action vary, it’s fairly typical for clients to feel some or all of the above concerns. Some people seem unfazed and are not frightened of the IRS at all. Typically, this reaction comes from taxpayers who have dealt with the IRS previously. The strongest fear many people experience is that others (employees, spouses, friends, etc.) will discover the problem. There’s a certain stigma about owing money to IRS – and they worry what others will think.

But the truth is many people experience these types of problems and it doesn’t indicate any lack of character. Taxes are a complicated issue – and running a business is always challenging. What’s important is recognizing when you need help in order to keep any problems from becoming overly burdensome. That’s precisely why we exist.

Summertime Tax Tip: Amending a 1040 Return

As the IRS states, the tax code is a complex set of laws affecting virtually every American individual and business. Last year the IRS processed over 244 million tax returns and other documents. The volume is a tribute to the voluntary tax system as well as the IRS workforce.

Undoubtedly, however, the complexity and volume of our tax system means that errors are almost unavoidable. As representation experts we do our best to find and correct those errors made by the IRS. But, that’s just one side of the equation. Every year countless taxpayers ask us what to do if they discover an error on a return that was already filed. The short answer is to not panic and correct the mistake.

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Questions about your unique situation? Learn more about ways we can help or feel free to contact us at any time!

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