Missed the tax deadline and can’t pay? 3 ways to reduce or avoid IRS tax debt and IRS tax problems

Missed the tax deadline and can’t pay what is due?  This can have disastrous consequences and must be taken care of quickly to avoid IRS tax debt.  It can quickly ruin your life for as long as you let it.

These types of problems do not only happen to you so do not feel alone. Generally, taxpayers who miss the tax deadline date either ran out of time or did not have the money to pay the tax owed. The worst thing you can do is to do nothing. Below are three ways you can avoid or reduce a costly tax bill:

1. Missed the tax deadline and can’t pay?:  Be sure to file your tax return even if you owe

“I will owe on my tax return and don’t have the money to pay, so there is no point in filing.” Sadly, many non-filers have these thoughts, but their thinking is completely wrong. It is best to always file on time or get an extension, even if you will owe the IRS. The IRS assesses penalties for non-filers (called the failure to file penalty). This is 5% of the amount of unpaid taxes each month, up to a maximum of 25%. In some cases, the late filing penalty can be higher than the late payment penalty so be sure to file as soon as possible if you have missed the deadline.

If this is your first failure to timely file penalty, be sure to request a penalty abatement from the IRS after you have filed. Don’t’ do it again as they will not be so forgiving the next time.

Luckily there is no late filing penalty for taxpayers that are due a refund. Taxpayers due a refund for the 2016 tax year have until April 18, 2020 (October 16, 2020 with an extension) to file before the statute of limitations on the refund runs out. Unfortunately, the U.S. Treasury keeps your refund if you do not file by these dates.

2. Pay as much as you can or pay it all off

If possible, pay your tax debt in full or pay what you can to reduce IRS tax debt. The failure to pay penalty is 0.5% of the amount you owe each month up to a maximum of 25%. If both the failure to file penalty (discussed above) and failure to pay penalty are due in the same month, the failure to file penalty is reduced to 0.5%.

You will have an extra six months to file if you were granted an extension. Make sure to estimate and pay what you think you owe for the year by the April deadline or as soon as you can. As mentioned above, the IRS will assess a failure to pay penalty equal to 5% of the tax you owe per month, up to a maximum of 25%.

And remember the IRS charges interest on the principal amount owed. The IRS charges interest at 3% plus the federal short-term rate, compounded each day (see also Rev. Rul 2017-6 Determination of Rate of Interest). This can add up to an enormous tax bill making it increasingly difficult to pay it all off.

Another concern to be aware is that if you never pay, you may be assigned to an IRS revenue officer.  A revenue officer can show up at your house to investigate what assets and income you may have to pay off IRS tax debt. They are very aggressive and have been given broad collection powers. And of course, the worst-case scenario is that you can be charged with a crime, such as tax evasion.

To make matters worse, your travel plans may be cancelled. In late 2015, Congress passed a law that allows the U.S. State Department to revoke taxpayers’ passports or deny passports to those who owe more than $50,000 to the IRS and are not in an agreement to pay.

Do not miss the tax return deadline.  The best thing you can do is avoid late filing next time or file an extension…and pay off your IRS tax debt quickly. To make a payment go to the IRS website at IRS.gov and choose an electronic payment option.

3. Enter into an IRS installment agreement (“IA”) to avoid IRS tax problems

If you missed the tax deadline and can’t pay in full, apply for an IRS installment agreement online or attach IRS Form 9465 Installment Agreement Request to the front of your tax return. In order to qualify and apply online, you must owe $50,000 or less, which includes all interest and penalties. Check out IA specific instructions when filling out and applying for an installment agreement.

And remember, to stay in an installment agreement and avoid a default, you must:

• Understand all future tax refunds will be applied to your tax debt until it is paid in full;
• Pay at least the minimum monthly payment when it is due;
• Include your name, address, SSN, daytime phone number, tax year and return type (generally 1040) on your payment;
• File all required tax returns on time and pay all taxes in-full and on time (contact the IRS to change your existing agreement if you cannot);
• Make all scheduled payments; and
• Ensure your statement is sent to the correct address. Contact the IRS if you move or complete and mail Form 8822, Change of Address.

If you owe more than $50,000 or cannot pay an adequate amount under an installment agreement, consider getting help from a tax attorney specializing in IRS tax debt resolution and strategy. If you missed the tax deadline and can’t pay, a skilled attorney will review your financial situation and strategize to assist you in resolving your IRS tax problems.

The Los Angeles Tax Attorneys at Delia Law have many years of tax resolution experience and will competently represent you before the IRS. Please call for a no-cost tax attorney consultation at (310) 494-01011. We look forward to helping you.

This blog post is not intended as legal advice and should be considered general information only.

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Avoid These Top 5 Tax Return Mistakes!–IRS Red Flag

Take care to start working on your taxes because the due date is near. There are many options for tax preparation including doing it on your own with tax preparation software.
It is immensely important to be vigilant in preventing tax return mistakes and avoiding an IRS Red Flag.

Far too many taxpayers rely on tax preparers to make sure everything is correct in their tax return and fail to review their tax returns for errors. They simply sign at the bottom. Even worse, many taxpayers have fallen victim to tax preparer fraud.

So, if you are preparing your own tax return or are having someone else do it for you, do not get lulled into a false sense of security. One data error could end up costing you a lot of money and a tax audit.  Be sure to review your tax return carefully whether using a tax preparer, CPA, tax software or doing it yourself. Keep these considerations in mind:

1. Filing status error

Make sure you designate yourself the correct filing status for your situation. There are five options: single, married filing jointly, head of household, married filing separately and qualifying widower with qualified child.

Take a close look into what each filing status entails. The selected chosen status should first qualify you under the requirements of the law and second, should be selected based upon which status would be most beneficial for your personal tax situation.

Which one you choose and qualify for can make a difference in your tax bill. For example, if you have recently divorced and are a single parent, choosing “head of household” may likely be the best filing status.

2. Incorrect social security number and name

The name on your tax return must match up with the tax identification number or social security number provided to you by the Social Security Administration as required by the IRS. This includes your children’s and spouse’s identification numbers. If they are in any way different or misspelled, the IRS will have processing issues with the tax return or even worse, may require corrections to process it.

This issue commonly comes up when new wives decide on taking their husband’s last name or when divorced women change their name back to their maiden name. If these circumstances happen, it is first important to change your name with the Social Security Administration after you wed. This will ensure that your new name will not cause a problem when you file your first joint tax return.

Also, don’t be one of those taxpayers that forget to put down their social security number on their return or insert it incorrectly. If either of these occur, the IRS will not process your return. It is also the only way to claim many tax credits including the child tax credit.

3. Math and computation mistakes

The most common mistakes on tax returns are math errors. This type of mistake can cause you to incur IRS tax debt or may cause you to miss out on some or all of a tax refund. Using tax preparation software definitely helps in reducing such errors due to built-in calculators, but the software can only do so much. The taxpayer must be the one to input the numbers correctly.

Be sure all computations are correct especially when your tax return is self-prepared or when using a tax preparer where there are numerous forms and worksheets. When everything is inputted correctly, check withholding, deductions, taxable income, credits and estimated tax payments for computation accuracy.

Review and check overall numbers inserted into your tax return. This vigilance will make it highly unlikely that you will receive an IRS notice of deficiency or notice of tax audit. The IRS will investigate reported taxable income on their end from w-2’s and 1099’s to make sure everything matches up with what is reported on your tax return. If something is incorrect, they will make the mathematical correction. Try to avoid this happening and make sure your math calculations are correct.

4. Failure to report additional income–a serious IRS Red Flag

Taxpayers commonly forget to report extra income aside from their w-2 earnings throughout the year. If you have a side job, you must report this extra income. Make sure you receive a 1099-MISC detailing these extra earnings from the company that you provided this work.

Also, other income that needs to be reported includes savings and investment accounts income. You should receive a 1099-INT and 1099-DIV for these types of income.  Do not forget to include these types of income on your tax return because the IRS will know of it if you don’t. If you have self-employment income, information on the 1099 form is reported to the IRS.

If you forget about this type of income or the company you worked for did not provide you with a 1099, the IRS will notify you of the unreported income and consequential tax deficiency. You may also be subject to interest and penalties on the unreported earnings.

5. Forgetting your signature

If you forget to sign and date your return, the IRS will not process it. If you are filing your tax return by E-file, make sure you sign using a personal identification number or PIN. Also, if you are married and filing married, both spouses must sign.

Taxpayers can experience IRS tax problems pretty quickly by making simple avoidable mistakes on their tax return. These small mistakes can easily result in an IRS tax audit resulting in quite large amounts of IRS tax debt. If tax resolution is necessary, there are many options to consider, including an offer in compromise or IRS payment plan.

The Los Angeles Tax Attorneys at Delia Law have many years of tax resolution experience and will competently represent you before the IRS. Please call for a no-cost tax attorney consultation at (310) 494-0100. We look forward to helping you.

This blog post on IRS RED FLAGS is not intended as legal advice and should be considered general information only

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IRS Audit Triggers – IRS red flags

IRS tax audit triggers – IRS red flags

With tax season underway, many taxpayers are starting to gear up in preparation of their tax returns. Some are starting early in hopes of a substantial tax refund. Many other taxpayers will procrastinate due to having to owe the federal government. One thing is for certain, all taxpayers want to avoid these IRS tax audit triggers at all costs.

Irs tax audit triggersMany think IRS tax audits are quite common, but they actually are not. Less than 1 % of all returns were audited in 2015. Unfortunately, the IRS does not have an exact list of automatic tax audit triggers, but we certainly should be aware of certain scenarios.  Here are the 6 biggest IRS tax audit triggers.

1. Failure to report all income from all sources. An audit is certainly triggered when income from all sources are not reported on your tax return. But, how will the IRS know, you ask? Income is reported to the IRS whenever you receive a W-2 or 1099 from a business.

And just because you do not have a W-2 or 1099 does not mean you do not have to report this income. You must be vigilant in obtaining these forms and contact your employers or business owners to obtain them. Keeping your address updated is always smart to ensure receipt of these very important tax documents during tax time.

Also, if an error is found on an income form, be sure to correct it with the business who will then correct it with the IRS. If it is not corrected, the IRS will only go off of the information that was reported to them.

2. Your business operated at a loss or had substantial or disproportionate business deductions. Unfortunately, Schedule C filers are targets because it is all too easy to abuse certain business tax deductions. There is a high probability that a tax audit will be triggered if your business deductions are disproportionately large compared to your income from your business.
If this is the case and all deductions are accurate, make sure you have all substantiations for the deduction(s) taken. Additionally, a tax audit will almost always be triggered when you are operating at a loss for more than three years or more.

3. You had substantial charitable deductions. Just as with business deductions, if they are disproportionately large as compared to your income, they will be suspect. Make sure to keep detailed records of your cash and property contributions.

4. You failed to report your foreign accounts. If you do not report your overseas accounts, you may face severe IRS penalties and an IRS tax audit.
FinCEN Form 114 (“FBAR”) is due by April 15th to report any foreign accounts with an extension available to October 15. It applies to: Any U.S. person, whether an individual or an entity, with a financial interest in or signature authority over one or more foreign bank or financial accounts must file an FBAR when the aggregate value of the accounts exceeds $10,000 at any time during the year.

5. You took rental property losses. The IRS is extremely tough on taxpayers claiming to be real estate professionals. In order to fully deduct these losses, you must be a real estate professional or be an active participant in the renting of your property. To be exact, real estate professionals must materially participate in real estate with over 750 hours each year and spend more than 50% of their working hours in real estate. These types of losses are heavily scrutinized by the IRS, and the rules to take them are quite strict. Be sure you qualify. Better yet, hire a tax attorney to make sure you do.

In the case that you are not a real estate professional or if you do not qualify, you may deduct up to $25,000 of property loss, which starts to phase out once your income reaches $100,000.

6. You earned more than one million. According to the Internal Revenue Service Data Book 2015, returns with income of $100k to $199k were audited at a rate of .64% versus returns with income of $1 million to $5 million being audited at a much higher rate of 8.42%. So, if you make more than one million, you pretty much have a target on your back.

Protect yourself and hire a tax attorney if facing an IRS tax audit. Arming yourself with a tax lawyer provides immense reassurance that you are fully represented by someone with the knowledge and ability to analyze the many complexities in the tax law. There are several options to consider if you come up with tax debt, including an IRS installment agreement or an offer in compromise.

The Los Angeles Tax Attorneys at Delia Law have many years of tax resolution experience and will competently represent you before the IRS. Please call for a no-cost tax attorney consultation at (310) 494-0100. We look forward to helping you.
This blog post is not intended as legal advice and should be considered general information about IRS Tax audit triggers only

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