Category Archives: Tax Debt Help

What You Should Know: Social Security Taxes

The number of individuals reaching the Social Security age in the United States continues to climb and many of those retiring are looking to enjoy some well deserved time off. So, at this stage in your life, how can you determine if you must pay taxes on your income derived from Social Security payments?

According to the Internal Revenue Service (IRS), “The amount of social security benefits that must be included on your income tax return and used to calculate your income tax liability depends on the total amount of your income and benefits for the taxable year.” In order to calculate whether your Social Security benefits are taxable, you must compare the base amount (for your filing status) with the total of:

  • One-half of your benefits
  • All of your other income, including tax-exempt interest

In addition, the amount for your filing status is shown as follows:

  • 25,000 if you are single, head of household, or qualifying widow(er),
  • $25,000 if you are married filing separately and lived apart from your spouse for the entire year,
  • $32,000 if you are married filing jointly.
  • $0 if you are married filing separately and live with your spouse at any time during the tax year.

By completing what is known as Worksheet A (1040), you will be able to determine whether or not you have to pay taxes on your social security benefits. If it is determined that taxes are owed, what is known as Worksheet 1 will help you to determine how much those taxes will be as you will be able to input your Social Security income, along with all other retirement income, part-time employment income, or any other benefits.

At this stage, you can complete Worksheet A. This will allow you to input your Social Security income, along with all other retirement income, part-time employment income, or any other benefits and tell if you will owe taxes on your Social Security benefits. If you will owe taxes, you will want to use Worksheet 1 to find out how much of your Social Security benefits will be taxed. Typically it will be 50% but can be has high as 85% depending on how much other income you had during the tax year.

Let’s take a look at an example:

Spouse A made $7,500 Social Security income, and Spouse B made $3,500 Social Security Income. They also made $22,800 in taxable pension. Total income from Social Security benefits is $11,000. You must take half of $11,000 ($5,500) and add that to $22,800 which is $28,300 total. Since this amount is less than the $32,000 amount for married couples, social security income is not taxable.

In addition to using the worksheet, you can review Publication 915 at IRS.gov website and read through examples, print off the worksheets, and get answers to frequently asked questions.

When and How to File an Amended Return

Every now and then after a filing your Individual Income Tax Return, Form 1040, you may recognize a mistake that was made, or something that was accidentally left off of the return. When this happens, an amended return should be filed to correct the mistake or make the change. If you notice a mathematical error or if you forget to attach necessary documentation, these are not reasons for sending in an amended return. The IRS will either correct the mathematical error for you, or will ask you for supporting documentation to continue processing your return. However, if there is a change in your filing status, credits or deductions, or the income you reported was incorrect you will need to file an amended return via Form 1040X.

If you have recently realized that you need to amend more than one return, you will need to make sure to use a separate Form 1040X for each amended return. Generally, this form must be filed within three years of the original filing date or within two years from the date at which you paid the taxes – whichever is later. You will need to enter the tax year that is being amended at the top of each return. Then, once completed, you must send each amended return separately to the IRS at the address for your particular location, which can be found in the 1040X Instructions. Your amended returns cannot be filed electronically.

If you will be receiving a refund from your original return, and your amended return will be claiming an additional refund, you will need to wait to receive your first refund before submitting the amended return claiming the additional refund. Once the amended return is filed, it can take up to 12 weeks before it is processed. If you will owe tax on your amended return, file the return and pay the additional tax as quickly as possible to reduce any penalties and interest you may owe. Once your amended return has been filed you may track the status of your return using the “Where’s My Amended Return” tool at www.irs.gov or by calling 866-464-2050. Both the online and phone tools are available in English and Spanish.

Time to File 2013 Tax Return

As we all know, April 15 is the deadline to file Individual Income Tax return for the previous year. More than 75 million taxpayers have already submitted their returns, but the IRS is still waiting for about 149 million people to file. If you cannot meet the April 15 deadline you will have to apply for an extension, which is automatically granted by the IRS upon receipt of the completed form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

Filing an extension allows you to send your Income Tax return after the deadline, but no later than by October 15, 2014 (for US citizens or residents who live in the US), and by June 16, 2014 (for those who reside outside of the country but have US tax obligations). It is important to understand that this extension is only applied to the late filing, and does not allow any late payments for 2013 Individual Income Tax return. Therefore, the best thing to do is to estimate how much tax you might owe for 2013 and send a payment to the IRS before April 15, 2014.

If the IRS does not receive your payment before April 15, your tax liability will be increased by interest and penalty for the late payment, which starts from 0.5% of any tax due amount that was not paid by April 15, and increases on a monthly basis until it reaches 25%. Although the IRS might forgive this type of penalty if a taxpayer can show a reasonable cause for not making a payment, it is still a good idea to make all payments on time.

If you cannot make a payment, and don’t have a good reason that the IRS might take into consideration to abate your late payment penalty, you should at least apply for an extension to file, because the IRS penalty for the late filing is higher that a penalty for the late payment. It starts from 5% of any unpaid tax and goes up until the whole amount is paid in full. In addition, in some cases it might be more difficult to show a reasonable case for not filing your returns than for not being able to make a payment on time.

How to Appeal a Denied Offer in Compromise

If you filed an Offer in Compromise in an attempt to resolve your tax debt with the IRS, and your Offer has been denied, there is still something you can do to get it accepted. The IRS Offer in Compromise Unit is required to send you a letter explaining why your Offer was denied, and give you 30 days to file an appeal. It is very important not to miss this deadline; otherwise your Offer case will be closed completely.

To appeal your denied Offer in Compromise, you need to carefully review the IRS letter of explanations and complete form 13711, Request for Appeal of Offer in Compromise. This form has a specific section that you should use to explain your reasons for disagreement on each particular item. You can also draft a separate letter with all the facts that support your position, or any additional information that you would like to provide. Do not forget to include your name, address, SSN and contact phone number every time you write to the IRS. You will also need to enclose a copy of the IRS letter that denied your Offer in Compromise and any supporting documents that you have.

The IRS Office of Appeals is a separate IRS organization that allows its employees to provide their independent professional opinion about each case. Working with Appeals often saves taxpayers valuable time and money that they might otherwise spend going to the Tax Court. After your Appeal Request is received, you will be notified about the date when the Appeals Officer can discuss the case with you. You can meet in person, or discuss the problem over the phone. You can also chose to be represented by a tax professional, which is usually the best and fastest way to go through IRS Appeals.  At 20/20 Tax Resolution we have extensive experience resolving cases with the IRS, including the IRS Office of Appeals.

It is essential to respond to all letters received from the IRS Office of Appeals in a timely manner. If you miss your scheduled Appeal hearing you might loose your right to appeal your Offer in Compromise denial. However, you can always be proactive and contact the Appeals Officer ahead of time to reschedule the hearing, if necessary.

It is also important to stay current and compliant with all your tax obligations. Although it is always a good idea to take care of your taxes, it becomes especially important when your case is being reviewed by the IRS, including Office of Appeals.

How to Release Wage Garnishment

A wage garnishment (also known as a levy on wages/income, or wage execution) means that a portion of your salary will be sent by your employer straight to the taxing authorities. This is one method that the IRS and State authorities have to enforce collection of the debt. Ideally, you would resolve the situation before this happens, but it is possible to release a wage garnishment even after it is in place.

First of all, it is important to know that the government is not allowed to issue a Levy on Wages without notifying you about the possibility of this action. The document used by the IRS for this purpose is called “Final Notice of Intent to Levy”; your State Department of Revenue may use another name, for example Tax (or Wage) Warrant. It is important not to ignore this letter, because it includes information about your rights as a taxpayer to file an appeal and, therefore, to put a hold on enforced collection activities.

If you already missed your timeframe to file an appeal, but have not received an actual Notice of Levy, contact your employer to take a closer look at your W4 form. You need to make sure that you correctly listed all exemptions for you and your dependents. This will help you to save some money when a Notice of Levy on Wages is issued. By law, a certain amount of your salary has to remain untouched so that you and your dependents can have the necessary minimum to live on. To calculate this amount, the IRS uses the number of exemptions listed on your W4 form and Tables for Figuring Amount Exempt from the Levy on Wages – these are revised every year.

Entering into a Payment Plan (Installment Agreement) with the IRS or State Department of Revenue before a Wage Garnishment is issued is one way to resolve the situation. However, if you were not able to reach this agreement prior to receiving a Notice of Levy on Wages, you can still do so now. All cases are different. Depending on the amount of your debt, you might be able to either set up a Streamline Installment Agreement that does not require any financial disclosure and lengthy negotiations, or you might apply for a Partial Payment plan by completing financial statement (form 433A for the IRS) and supporting it with a detailed proof of your income and expenses. These are just two examples of tax debt settlement, but there are also other ways to take care of your liability. Which resolution option is best depends on the specifics of your situation. The main point is that entering into a repayment agreement with the taxing authorities will automatically release your Wage Garnishment.

What if your financial situation is so bad that you simply cannot wait for the IRS or the State to review your payment plan request, and need to have a garnishment to be released immediately? It may still be possible, but you need to be ready to provide proof of your expenses, and to show that the levy on wages creates economic hardship for you and your dependents. For this purpose, the IRS uses the same financial statement, form 433A. If you have a state tax debt, the best way to find the correct document is to contact the person assigned to your case.

If your wage garnishment is released due to the economic hardship and your difficult financial situation, you might also use this opportunity and ask to put your case on Currently Non Collectible status until your condition improves.

If you would like some additional help and advice on what to do about an existing wage garnishment or Notice of Levy, feel free to call 20/20 Tax Resolution for a free consultation.

Choose the Right Tax Resolution Company

The tax deadline has come and gone. Hopefully, like most people, you filed your return on time, as IRS penalties can be more severe for non-filing than for non-payment. However, if you have unpaid tax, that does not mean that you can relax. It’s time to take control of your situation.

If you owe a relatively small amount (e.g. less than $10,000) and have some assets, disposable income, or borrowing potential, then there are plenty of options that the IRS provides to help you resolve your tax debt yourself. Some of these are explained in the tax resolutions section of our website.

On the other hand, if you owe lots or have no way of paying what you do owe, even over time, then you should seek the help the help of a tax resolution specialist that has expertise negotiating reasonable settlements with the IRS and State taxing authorities. The next challenge is how to choose a reputable company that can really help – as with most industries, there are both good and bad tax resolution companies. Here are a few do’s and don’ts…

  • Do check references. You want to work with a company that has successfully resolved other cases similar to your own, perhaps even in your own state or city. Check out some of our successful resolutions. You may even want to contact us and organize phone references.
  • Do call Dunn & Bradstreet. You want to ensure that you’re working with a stable company, not one that will disappear tomorrow. You can check a company’s financial stability at dnb.com. We have the best record in our industry.
  • Do check the Better Business Bureau. You want to work with a company that has a sterling record with the Better Business Bureau (BBB), so check it out. Our home state is Colorado, so you can check our record by calling 303-758-2100 or going to our record at denverbbb.org. Do beware of companies that are listed with the BBB in one state, but operate out of another in order to try to conceal complaints.
  • Power of Attorney. In order to represent you in front of the IRS, you will need to sign a Power of Attorney. However, DO NOT sign a blank Power of Attorney; you should only do this after you’ve had a chance to fully review the completed document, and after you know exactly who will be representing you.
  • Beware of False Promises. It is critical that you’re not taken in by fake guarantees that are never backed up in the fine print, or the “pennies on the dollar” scams that are frequently advertised. The latter refer to the Offer in Compromise (OIC) program, where you can settle your tax debt for less than you owe. However, this program is only for taxpayers that cannot pay their tax debt, even over time – only a small percentage of offers are accepted. This might be the best option for you, but make sure you know the facts before entrusting your financial future to this type of company.

There are plenty of good tax resolution companies, but equally plenty of bad ones. Do your homework and make sure you’re working with a reputable firm

First Time Penalty Abatement Changes

On the April 5th, 2013, the IRS modified its First Time Abate procedure. This change affected section 20.1.1.3.6.1. of the Internal Revenue Manual. According to the recent update, a taxpayer seeking First Time Penalty Abatement has to be current with all filing and payment requirements, which means that all tax returns have to be filed and all current payments, including federal tax deposits, have to be paid on time and in the full amount.

First Time Abate (FTA) is a policy of the IRS that allows removal of  the Failure-to-File, Failure-to-Pay, or Failure-to-Deposit penalty due to the history of taxpayer’s compliance, and not to any sensible reasons that can be provided by a taxpayer to explain what caused the debt to accrue.

Although it sounds like a great deal, FTA cannot be granted for more than one tax period for a given Master File Tax. If you have multiple periods of the liability, the IRS will grant FTA for the earliest period. You will still have an option to remove all other penalties, but in order to do that you will have to submit a Penalty Abatement request and prove that your failure to comply with your tax obligations was a result of events beyond your control.

Another requirement for FTA to be granted is that the taxpayer cannot have any penalties for 3 consecutive years before the period that is a subject for FTA on the same Master File Tax. In simple words, if you would like to abate a penalty for your 2009 940 – Unemployment Tax return, you cannot have any penalties on your 2006, 2007 and 2008 940 accounts.

However, in some cases the IRS will review other Master File Tax accounts as well  If, for example, your filing requirements were changed.  Let’s say that in 2006, 2007 and 2008 you filed form 944 – Employer’s Annual Federal Tax return (also known as the IRS Master File Tax 14). In 2009 your filing requirements were changed to 941 – Withholding Tax return (which is IRS Master File Tax 01). Looking into the previous 3 years to see whether you had any penalties, the IRS will review your 944 accounts.

Fresh Start Offer in Compromise

The IRS Offer in Compromise is a tax debt resolution option that is very appealing for many taxpayers because it sounds like a good deal. The idea behind the Offer is that a large part of your debt (not only penalties and interest, but even some of the tax due portion) is forgiven by the IRS as long as you pay a certain amount within a short period of time and, of course, stay current with your tax obligations from now on.

Many tax resolution companies use an Offer in Compromise example to attract potential clients to do business with them. What they usually do not tell you is that the IRS Offer is not an easy goal to achieve, and that not everybody who has a tax debt qualifies for it.

However, there is also good news about the IRS Offer in Compromise. It is called the Fresh Start IRS Program. In May 2012 IRS made major changes to the Offer in Compromise requirements to make it available for a broader range of delinquent taxpayers. The most important modifications that have been made affect the IRS allowable expenses and the potential income of the taxpayer that is used to calculate the Offer amount.

When the IRS calculates the amount for which the government will agree to settle your tax debt by accepting an Offer in Compromise, there are two main items that are being considered. These items are equity in your property and your disposable income. The Offer amount is usually a sum of equity you have in your assets and your monthly disposable income multiplied by a number of months. The old rule that the IRS used was to look into a taxpayer’s income for the next four to five years. This has been changed to just one or two years, depending of how fast you would like to full pay the Offer. If you can make a full payment for the offered amount within five month after the Offer in Compromise gets accepted, your disposable monthly income will be multiplied by twelve months. If you would like to spread your payments for six to twenty-four months, the IRS will look into two years of your future income and multiply your disposable income by twenty-four.

Another important item that has been changed in favor of the taxpayer is the IRS rule that is applied to expenses. When the IRS calculates your disposable income, it does not always consider the real amounts that you spend on food, transportation, housing and utilities. If your expenses are higher than National Allowable Standards, the IRS will most likely to apply their standards instead of considering how much you really spend. However, Fresh Start program increased National Allowable Standards and also added new categories of allowable expenses, such as student loans and state and local tax debt repayments.

Intent to Terminate Your Installment Agreement

It usually does not happen without a reason. However, the IRS Notice CP523 – Intent to Terminate Your Installment Agreement – often leaves a taxpayer wondering about what might have happened for the IRS to suggest that an Installment Agreement is about to default.  The most obvious reason would be a missed payment, but what if all payments have been made in full and on time?

When the IRS accepts a repayment agreement with a taxpayer, the Service promises not to attempt to collect the debt by any enforcement action. On the other hand, a taxpayer is informed that all tax obligations from that point forward have to be paid in full and on time. In addition, all tax returns have to be filed on time.

If you received the IRS Notice CP523, the first thing you need to do is to find the reason that caused this problem. You can do it yourself by calling the number indicated on the Notice, or ask your tax resolution representative to do that on your behalf. If all Installment Agreement payments have been made on time, then the next thing that you need to check is whether there are any outstanding tax returns that still have to be filed. You should also verify if all payments on returns, which became due after your agreement was finalized, have been made in full and on time. This is one reason why you should keep copies of all correspondence between you and the IRS, together with your mail delivery confirmations.

If you have not missed any Installment Agreement payments and have filed and paid all of your tax returns on time, then you have eliminated the most common causes for the Installment Agreement to default. However, there is something else that the IRS does not make very clear in its Terms of Installment Agreement – it is the fact that any new tax liability automatically defaults it.

Let’s say the IRS accepted an Installment Agreement for your 1040 – Income tax liability for the years 2006 through 2010. At some point after the agreement was approved, you got audited and the IRS assessed additional $150 for the year of 2009. The IRS sent you a letter stating that, but you have not paid attention to that letter because, as far as you were concerned, your 2009 liability was on a payment plan. However, any new tax liability (not penalties and interest, but the tax due amount) that is assessed after the Installment Agreement was approved terminates the agreement. Therefore, it would be a good idea to pay $150 to the IRS to make sure nothing is affecting your payment plan.  However, there are also other ways to approach a situation like that.

If the additional balance is not large, you can full pay it within 30 days from the day of the Notice CP523, as was already mentioned above. Make sure to contact the IRS to confirm that your payment has been received and the IRS will not terminate the Agreement. If you cannot afford to full pay the additional balance, you can either ask the IRS to include it into the Installment Agreement, or, if your request is denied, let the agreement default completely and then submit a brand new payment plan proposal.

No matter which way you choose, it is advisable to talk to your tax resolution representative before taking a certain course of action. You can then decide if you would like to take care of the situation yourself, or might need help from a professional.

It usually does not happen without a reason. However, the IRS Notice CP523 – Intent to Terminate Your Installment Agreement – often leaves a taxpayer wondering about what might have happened for the IRS to suggest that an Installment Agreement is about to default.  The most obvious reason would be a missed payment, but what if all payments have been made in full and on time?

When the IRS accepts a repayment agreement with a taxpayer, the Service promises not to attempt to collect the debt by any enforcement action. On the other hand, a taxpayer is informed that all tax obligations from that point forward have to be paid in full and on time. In addition, all tax returns have to be filed on time.

If you received the IRS Notice CP523, the first thing you need to do is to find the reason that caused this problem. You can do it yourself by calling the number indicated on the Notice, or ask your tax resolution representative to do that on your behalf. If all Installment Agreement payments have been made on time, then the next thing that you need to check is whether there are any outstanding tax returns that still have to be filed. You should also verify if all payments on returns, which became due after your agreement was finalized, have been made in full and on time. This is one reason why you should keep copies of all correspondence between you and the IRS, together with your mail delivery confirmations.

If you have not missed any Installment Agreement payments and have filed and paid all of your tax returns on time, then you have eliminated the most common causes for the Installment Agreement to default. However, there is something else that the IRS does not make very clear in its Terms of Installment Agreement – it is the fact that any new tax liability automatically defaults it.

Let’s say the IRS accepted an Installment Agreement for your 1040 – Income tax liability for the years 2006 through 2010. At some point after the agreement was approved, you got audited and the IRS assessed additional $150 for the year of 2009. The IRS sent you a letter stating that, but you have not paid attention to that letter because, as far as you were concerned, your 2009 liability was on a payment plan. However, any new tax liability (not penalties and interest, but the tax due amount) that is assessed after the Installment Agreement was approved terminates the agreement. Therefore, it would be a good idea to pay $150 to the IRS to make sure nothing is affecting your payment plan.  However, there are also other ways to approach a situation like that.

If the additional balance is not large, you can full pay it within 30 days from the day of the Notice CP523, as was already mentioned above. Make sure to contact the IRS to confirm that your payment has been received and the IRS will not terminate the Agreement. If you cannot afford to full pay the additional balance, you can either ask the IRS to include it into the Installment Agreement, or, if your request is denied, let the agreement default completely and then submit a brand new payment plan proposal.

No matter which way you choose, it is advisable to talk to your tax resolution representative before taking a certain course of action. You can then decide if you would like to take care of the situation yourself, or might need help from a professional.

IRS First Time Penalty Abatement (FTA)

An IRS penalty is an additional amount that can be assessed on top of your tax liability for various reasons, such as failure to make deposits, failure to file a tax return, failure to pay taxes, etc. There are also Accuracy-Related penalties, penalties for filing a frivolous return, and many more. The reason for penalty assessment is to ensure compliance by taxpayers, which is a very harsh method, considering that the amount of penalty can be anything from 0.5% to 100% of the tax due, or even higher.

The usual way to deal with penalties is to get in compliance with the IRS, which means start filing your returns and paying taxes, and submit a penalty abatement request – assuming you have a reasonable (and acceptable) explanation of why you fell behind. However, the IRS has strict rules when analyzing requests to abate penalties received from the taxpayers, and many of these demands are denied because taxpayers fail to show that they exercised ordinary business care and prudence in determining tax obligations – one of the necessary conditions for the penalty abatement.

Fortunately, there is another option for those who just made a mistake once, and would like to correct it. This waiver is called a First Time Abate (FTA).  If you or the business you are operating accrued a Failure-to-File, Failure-to-Pay, or Failure-to-Deposit penalty, you might be qualified for FTA. Just remember that you can only use FTA to waive penalties for one particular period of the liability, and only if you had a compliant history for the prior three years.

Not all penalties are subject for FTA. For instance, estate and gift tax returns are not included in this list. There are also other restrictions, so the best way to approach this problem is to contact your tax resolution representative and discuss the best way to move forward.

If your FTA is approved by the IRS, you will receive a letter informing you that the penalty was waived due to your history of compliance.