Make Sure Your Tax Documents Are Diaster-Proof

Safeguard those records... because if your Tax Documents get damaged- you might be out of luck. Some things like receipts for deductions are irreplaceable, but there are plenty of tools and resources you can rely on to replace tax documents, bills, and receipts.

The "Paperless" Advantage
Putting all of your eggs in one basket is dangerous. When you go Paperless with your Tax Documents, you have the option of keeping your file in a variety of places. Here's a few ideas.

1. You can scan your tax forms and documents and uploaded them to a server or save them to a CD/DVD

2. Take advantage of online banking, which secures financial records and can take the place of purchase receipts.

3. Use one of the commercially available record keeping software services available online or for purchase at a retail store to keep all files organized and backed-up.

IRS Assistance
The IRS will help you replace lost documents if necessary. Here's the forms you'll need to know:

Form 4506, Request for Copy of Tax Return- You can use this to request a copy of your Tax Return immediately after a disaster

Form 4506, T, Request for Transcript of Tax Return- If you need information for your return you can call 1-800-829-1040 or use Form 4506. The Transcripts available will be from the current year and returns processed in the three prior years.

Final Tip With a little prior preparation you won't have to reconstruct your records if the worst case scenarios occur. But keep in mind, the IRS offers plenty of opportunities and resources for recovering lost information. With few exceptions, natural disaster, hurricane or not, if you don't have your taxes ready by the due date, you will face the consequences.

A Friendly IRS Update, Bigger Paychecks Lately?

Paycheck Increase? Have your paychecks been looking a bit bigger lately? This is due to the Making Work Pay Credit, which is basically a $400 cut in payroll tax. The money is distributed in small increments of about $8 per paycheck, which is designed to encourage you to spend the money instead of save it (like you would be inclined to do if you recieved a check for $400.00). Well, cash is cash, right? Wrong! If you don't watch out, this "Tax Credit" can have you owing the IRS.

Smaller Refunds, or Owing More... The extra money comes with one small caveat. If you qualify for the Making Work Pay Credit, you may recieve a smaller refund, or no refund at all! Conversely, if you usually have to pay the IRS, you could end up paying more. Everyone needs to pay close attention to their withholding to make sure the proper amount is being withdrawn.

Those who should pay particular attention to their withholding include:

• Pensioners (see more information under Pensioners, below)
• Married couples with two incomes
• Individuals with multiple jobs
• Dependents
• Some Social Security recipients who work
• Workers without valid Social Security numbers

If you want to double check your withholding, use the IRS Withholding Calculator (http://www.irs.gov/individuals/article/0,,id=96196,00.html).

The Complete Guide to Understanding IRS National Standards

IRS Troubles? Trying to work out a payment plan with the IRS? Your first step is disclosing your entire financial situation to the IRS. This helps them determine how much you can pay each month. You calculate and decide you can pay $500 per month. But the IRS's letter says you can pay $2,000 per month. What's the deal, how can the dollar amounts differ so greatly?

National Standards The National Standards are in place to keep you from spending money owed to the IRS to subsidize your lifestyle. What does this mean? The IRS wants you living on bare minimum with basic living expenses so you can pay them more money.

Here's the National Standards for Basic Necessities for two people:

Food- $537
Housekeeping Supplies- $66
Apparal & Services- $162
Personal Care products & Services- $55
Miscellenious - $165

These amounts are adjusted with inflation and are more than fair. You shouldn't be spending more than $162 per month on apparal when you owe the IRS thousands, isn't that fair? Other expenses like housing and utillities and transportation vary from state to state and are based on census bureau data. If you're living over these amounts, you'll need to adjust your lifestyle in order to make payments or justify the high amounts.

Two Steps for Justifying Expenses: There are two questions you need to ask yourself about your expenses in order to qualify them as necessary, basic living expenses that can be justified to the IRS.

1. Are the Expenses Necessary for you and your family to live? This includes medical bills, food, and a roof over your head. The IRS won't let you die, otherwise you can't work to pay your taxes!

2. Are the Expenses Necessary for you to earn money? The IRS will allow you to spend money to make money- it will directly benefit them, after all. This includes ordinary and necessary business expenses, nothing extravegant.

If the expenses don't fit under these two spectrums, it will be harder justify the expense, if not impossible.

4 Big Unallowable Expenses: The following expenses are erroneously believed to be allowable expenses. These are all considered "luxeries" and will never count as basic living expenses.

1. Private School- Send the kids to Public School, this is not a basic expense


2. College Tuition- College Tuition paid for your children does not count. However, you can count the cost of College for yourself. A higher education means more money earned, which the IRS cna seize to pay for the debt.


3. Cable- Get used to reading books and watching public television. Hey, this Tax Debt might be the best thing that ever happened for your intelect.

4. Credit Cards- This one really hurts. You cannot pay your creditors when you owe the IRS. Creditors are voluntary lenders, the IRS is not.

Three Ways to Play the IRS System

1. Internet- tell them you need the internet for work and your job search, they're likely to let it slide. It's a good idea actually use it to search for additional jobs to pay the IRS...
2. Magazine/Newspaper Subscriptions- Again, if it's realted to finding work and you can prove it, it's allowed.

The higher your expenses, the lower your payment amount. If you need help negotiating a lower payment with the IRS, consider working with a reputable CPA or Tax Negotiation company that can work with you to reduce the payment amount. Just don't go listing luxuries like Cable and Private School as basic necessities, the IRS will find out and you will be penalized with higher payment amounts.

UBS Client Steven Michael Rubinstein Pleads Guilty to Tax Evasion

Breaking Tax News: The IRS is keeping its promise to throughly investigate shady offshore transactions. Steven Michael Rubinstein, a wealthy accountant for a yacht brockerage company in Boca Raton, became the first U.S. citizen to be charged in the government’s investigation into taxpayers who hid assets from the IRS in the Swiss Bank UBS AG.

“Combating offshore tax evasion has been and will continue to be one of the IRS’s top priorities,” said IRS Commissioner Doug Shulman, in a statement. “Today’s actions show the IRS is committed to pursuing people hiding income offshore. Anyone in this situation needs to immediately come in through our voluntary disclosure process before it’s too late.”

Rubinstein could face up to 3 years in prison and a $250,000 fee.

The IRS is urging others like Rubinstein to come clean, even opening hotlines for disclosure. You might be asking yourself, "Why would I want to do that?" Well, the IRS answers that question for you:

"Taxpayers with undisclosed foreign accounts or entities should make a voluntary
disclosure because it enables them to become compliant, avoid substantial civil
penalties and generally eliminate the risk of criminal prosecution."

If you come clean, the IRS is saying they'll go easy on you. Just a suggestion for anyone out there who doesn't want to become a famouse example like Helio Castroneves and Steven Micahel Rubinstein.

Joint Accounts and Marrying Into Tax Debt, See if it Can Happen to YOU

One Giant Mess: Joint accounts are notoriously difficult to navigate, even for established experts. That's because sometimes you pay together towards one debt, sometimes you don't. Couple that with community propetty state issues and we can make a formula: Marriage plus Tax Debt Equals Disaster! Here's how to solve the equation.

Same Household: It’s easier for the IRS to handle cases where the couple shares a household- they both owe the debt and they will both have to participate in the solution. The IRS will need to know the expenses for everyone in the household.

Even if the couple if Married Filing Seperate, if they both live in the same household, they both n need to participate in the solution.

Different Household: A joint account with a pending divorce makes things more difficult. This involves two separate payments; it’s not simply one arrangement.

The minute the couple splits and starts maintaining two households, it’s payment plans, although the payments will both be going towards the same debt. Their payment amounts will be based on their respective financial statements.

Community Property States

You can marry the tax debt, be careful who you marry if you live in a Community Property State. If they owe, you owe. They can in fact be levied, “based on community property laws by the state.” Basically, as long as you are legally married the IRS can go after your wages for your spouse's debt.

The Community Property States List: Married persons are considered to own their property, assets, and income jointly. If married epople decide to file separate tax returns, they must follow their state rules for community income:

-Arizona
-California
-Idaho
-Louisiana
-Nevada
-New Mexico
-Texas
-Washington
-Wisconsin

No Innocent Spouse Relief: They cannot file for innocent spouse reliefn if you live in a Community Propetty State, the spouse is guilty by way of the state laws.

Final Tip: The IRS will need to speak with both individuals, pending legal seperation or not. Understanidn this early on is crucial. For divorced couples, the legal dispute keeps the IRS from disclosing infromation. Here's a first-hand description from someone who e-mailed me just the other day:

"With the debt they treat us as though we are still married, but when I call to find out what is going on I only get half the story because then they treat us like we are divorced. "

The moral of the story? Roll up your sleeves are prepare for a battle, and if you can't handle it on your own, consider looking to a professional for help.

Been burned before? Don't let it happen again! Choose the right Tax Relief Professional

I've been receving a lot of e-mails from taxpayers that have been burned by shady Tax Relief companies, CPAs, and even attorneys! Many people look for help from an expert to make the Tax Resolution process easier. But how do you know which Tax Relief Professional or Company to choose?

Better Business Bureau Rating

Choose a Tax Resolution company with the highest possible rating with the Better Business Bureau. The Better Business Bureau assigns letter grades A through F to qualifying businesses. Many leaders in Tax Relief industry have low scores. You want to choose a Better Business Bureau accredited Tax Relief company with the highest rating possible and no unresolved complaints.

No Retainer Fee

Retainer Fees or Retainer Agreements are binding contracts. Once you sign one, the Tax Relief Company can charge more fees later. Look for companies with a flat fee that does not change.

No Pressure Agreements

No one should try to pressure you into an agreement on the phone. If you encounter a Tax Relief Professional that requests personal information like credit card or bank account information over the phone, it’s best to just end the call.

Qualified Employees

If you choose to work with a Tax Resolution Company make sure you are only working with one that employs Attorneys, CPAs, and Enrolled Agents.

Avoid “Pennies on the Dollar” Scams

The IRS issued a statement warning taxpayers to be aware of promoters that claim IRS Tax Debt can be settled for “Pennies on the Dollar”. Statistically, few Tax Debt cases are settled with an Offer in Compromise. And fewer still are ever settled for pennies on the dollar. Work with a Tax Relief Professional that gives you realistic expectations.

Good Signs

The following is a list of positive indicators that the company you’re working for is legitimate and trustworthy.

• Free Consultation: An honest company without anything to fear will offer a free consultation, giving you the opportunity to compare your options without losing any money.
• Experience: You should work with a company with at least 10 years of experience in the Tax industry.
• Flat Fee: A stated flat fee means you won’t be in for surprises later. Look for companies that charge a fair flat fee, and avoid companies that require you to sign a Retainer Agreement.

In the end, it’s your responsibility to make sure your Tax issues are taken care of in an honest and accurate manner. It’s imperative to be careful and make informed decisions when you choose a Tax Resolution Professional.

Offer in Compromise Little-Known Facts

The Harsh Truth: The IRS wants the entire tax liability paid in full. After all, millions of Americans manage to do this every year, why shouldn’t you? The IRS will evaluate every single detail of your IRS case and situation before they even consider your offer. Here’s what you need to know before your submit an Offer in Compromise to the IRS.

• You don’t qualify: If you have the ability to pay the Tax Debt in full or pay it in monthly payments with an Installment Agreement, you don’t qualify for an Offer in Compromise. Even with special hardship circumstances, like unemployment, most people will not qualify for an Offer in Compromise.

• It’s not the best option: An Offer in Compromise isn’t for everyone. There’s a wide variety of ways to solve your Tax Debt issues, and you need to find the solution best suited to you. Sometimes an Installment Agreement is a better solution; it all depends on your situation.

• It'll cost ya: Depending on which Offer you submit, an application fee of $150 and a percentage of the offer made must be submitted to the IRS. The money you send is nonrefundable! This means you’ll lose big if you’re not approved.

• Your Tax Lien is here to stay: Even if your Offer is approved, your Tax Lien remains until your Tax Debt is paid in full. According to the IRS, you have less incentive to finish paying your debt without the Tax Lien in place.

• Tax Levies are Finders, Keepers: The IRS will keep the proceeds from a levy served prior to submission of an Offer in Compromise. This means the money the IRS seized from your bank account prior to the OIC will not count towards the OIC, and the IRS is keeping it.

• No more refunds: No Tax Refunds will be received until the tax debt is paid in full. The IRS is letting you pay less than you owe, fair is fair, right?

• Collections statutes extended: The statutory period of your debt is suspected while the IRS investigates your Offer, and it’s further extended if you appeal an Offer in Compromise rejection. This will extend the amount of time the IRS has to collect on your tax debt. It’s a good idea to make sure you’ll be approved if you apply, the statute of limitations on your debt can be extended for years.

Ready to Apply? If you think you’re ready to take on the responsibilities of an Offer in Compromise, fill out IRS Form 655 Offer in Compromise. And remember to double check and proofread, the required $150 application fee and 10% of the offer is nonrefundable. A mistake could cost you big bucks.

Tax Defense Network at the Jacksonville Pink Slip Party, Check it Out

Despite the harsh economic conditions (or because of them) buisiness is booming here at Tax Defense Network. We recently took part in a "Pink Slip Party" - not as sinful as it sounds. It's actually a unique networking and job opportunity. Check out this video for the full scoop.

IRS Tax Issues: Medical Deduction Myths to Avoid, Stay out of Trouble With the IRS

Stop Right There: Don't make a claim unless you know the facts. There are plenty of rumors swirling around about what you can and cannot claim as medical deductions. But the IRS's official list in Publication 502 says otherwise. Watch out, don't fall for the myths..

You can include ALL of your insurance premiums in your medical deductions.
Wrong. The IRS actually has a list of insurance premiums that you cannot include as medical deductions. These include:

-Life insurance policies
-Policies providing payment for loss of earnings
-Policies for loss of life, limb, sight, etc
-Policies that pay you a guaranteed amount each if you are hospitalized for sickness or injury
-Health or long-term care insurance if you elected to pay these premiums with tax-free distributions

You can include your Weight-Loss Program in your medical deductions.
Wrong again! You can ONLY include a weight-loss program in your medical deductions if the program is vital and you have a serious medical illness. This includes issues like obesity and heart disease. But remember, even if you do qualify to use your weight-loss program as a deduction, you cannot include membership dues in a gym, health club, or spa as medical expenses. You can only include separate fees charged at the gym or health club for weight loss activities.

You Can Include Cosmetic Medical Procedures in your Medical Deductions.
No. This is almost never true. You cannot include procedures like teeth whitening, plastic surgery, or hair removal in your medical deductions. Some people think you can claim things because they may help your overall health, but you cannot claim ANYTHING that is better for your overall health. (Like Vitamins, Herbal Supplements, and Vacations!) However, if the cosmetic surgery is to help repair disfigurement from birth defects or injuries, you may be able to claim the procedure as a medical deduction.

Fair Warning: If you claim a medical deduction that is not considered to be appropriate, the IRS may label it as Tax Fraud. Tax Fraud is a crime that carries civil penalties and criminal charges. So don't try to get creative on your Tax Returns!

IRS Collection Statutes: Exceptions to the infamous "10 Year" Rule

Free at Last: Ten long years have passed since the IRS first discovered your Tax Debt. Somehow, you've made it this far without being levied, bullied, and laid to rest. But now the IRS can't collect from you anymore! Right?

Actually, They can.

Contrary to popular belief, the IRS can continue to collect after ten years have elapsed on your tax debt.

It Starts: The IRS ten-year statute of limitations period starts when the IRS officially determines you owe the debt. After ten years, your IRS case is closed and it becomes illegal for them to contact you regarding the debt. But there are several ways the Statue of limitations can be extended.

The following will extend the Statute of Limitations on your Tax Debt:

-Filing An Offer in Compromise

-Being in litigation with the IRS

-Request a Collection Due Process Hearing

But wait, there's more:

-Federal Lawsuit: If the IRS sues you the statutes can be extended

-Signing a Waiver: Signing a waiver might be required for things like setting up an Installment Agreement with the IRS.

The general rule of thumb is this, any action that puts your IRS Case on hold will extend the statutes. Otherwise, the IRS is losing years to collect their money.

And don't forget about Bankruptcy:

-Ch.7 Bankruptcy: this will extend the statues by 1 year on average

-Ch. 13 Bankruptcy: this will extend the statute of limitations by 5 years plus another 6 months for good measure!

Post Expiration: The IRS has been known to call individuals after their Statute of Limitations have expired. Most of the time, the taxpayer doesn't even know the statutes have expired! If you know you've been paying on your debt for years, double check to make sure you're not paying what you don't have to.

Can’t pay the IRS? Here’s your options- Learn about IRS Payment Plans for When You Can’t pay in Full

If you owe the IRS, there’s no time to lose. You need to pay, and fast! If you call the IRS directly you’ll learn they only want to talk about one thing, and that’s how soon you can pay in full. But that’s not your only option. You can pay the IRS in monthly installments or in partial payments.

IRS Installment Agreement
Much like how you pay on your credit card debts, you can pay the IRS in monthly payments. However, there are some key differences. You decide how much you pay creditors, but the IRS determines the amount you’ll pay them monthly. They do this by taking a close look at your financial situation and determining your disposable income. So making a valid case when you apply for an Installment Agreement is a must. Additionally, the amount you pay monthly must satisfy the entire tax debt within three years. In order to apply fill out IRS Form 9465, Installment Agreement Request.

IRS Partial Payment Installment Agreement
In a Partial Payment Installment Agreement, the taxpayer makes regular monthly payments to the IRS, but the payments do not pay off the tax debt in full like the classic Installment Agreement is intended to. After the terms of the Installment Agreement are fulfilled, the remainder of the IRS Tax Debt is forgiven. Although requesting a Partial Payment Installment Agreement with the IRS is easier than submitting an Offer in Compromise, it’s still tricky. First, you need to write a letter stating your request for a Partial Payment Installment Agreement and submit it to the IRS along with IRS Form 9465 and IRS Form 433-A. Consider consulting with a qualified professional to help you with these steps.

Paying in Full When you Don’t have the Cash
Taking out a loan at the bank to pay your IRS debt is a good way to stop interest from accruing on your account. Even if your credit is in trouble you can still qualify for a loan and decrease your Tax Debt. A Bank Loan is cheaper than an IRS Debt. Penalties and Interest on Tax Debt are a lot higher than a loan from a bank. A typical Bank Loan, if you can get one, is around 6.5% interest versus Penalties and Interest on an IRS Debt which is usually 8% compounded daily. If you have the option to pay your Debt in Full with a Bank Loan, you should consider this solution.

If there is any way possible for you to pay your Tax Debt in full, consider that solution as a priority. Remember, penalties and interest continues to accrue on your Tax Debt when you choose to pay with an Installment Agreement. You’ll be saving money in the long run if you borrow money to satisfy your debt.

Retirement and Taxes: How to Stop the Tax Machine During Your Retirement Years

Tax Free Retirement: You can retrieve tax-free income after you retire. Few people know about a unique retirement plan that can save you thousands.

The Lowdown: The Roth IRA and Roth 401(k) plans are very similar to their counterparts, the plain old IRA and 401(k). With the regular IRA, you get an immediate tax deduction, but you have to pay income taxes when you withdraw money. With the Roth IRA and 401(k), you cannot get an upfront tax deduction. But you do not pay taxes on the money you withdraw. So how can this save you thousands of dollars?

Withdrawal: The Roth IRA and 401(k) saves you money when you withdraw. You don't have to pay taxes when you withdraw money like you have to with a normal account. That saves you more money than the upfront Tax Break of the normal IRA and 401(K).

Opening One: If your job offers the Roth 401(k) program, you automatically qualify for it. But funding a Roth IRA is different. Qualifying will depend on how much money you make. To invest the full $5,000 in a Roth IRA you must make $159,000 if married filing jointly and $101,000 if filing single.

More Benefits: The Roth IRA and 401(k) have more benefits than saving you cash. For instance, with a regular IRA plan you have to withdraw money the April after you turn 70 ½. If you don't, you'll face a penalty fee. With the Roth IRA, you never have to withdraw money until you want to. You can even pass it along to your children.

Final Tip: The Roth IRS even affects your social security. You can have your social security check taxed less in retirement. That's because withdrawals from Roth IRAs are excluded from the IRS's calculations when they decide your taxable income.

Depending on your situation, there are many benefits to trying the Roth IRA and 401(k) plans. Try it out, and see if you qualify for big savings.

IRS Notice of Federal Tax Lien- Everything you need to know about Tax Liens, the IRS's Silent Killer

NOTICE OF FEDERAL TAX LIEN: If you got the "Notice of Federal Tax Lien" letter in the mail, questions are whizzing through your mind. "Will this affect my credit?" and "Can I get the Lien removed?" are just a couple that I'll cover.

Will the IRS remove the Tax Lien if I pay just a little per month?
NO. This is a huge misconception. In reality, it's incredibly difficult to remove a Tax Lien. The Tax Lien will remain, even when you pay in monthly installments.


Will the Notice of Federal Tax Lien affect my credit?
Yes. That's because the Notice of Federal Tax Lien is really a document that notifies your creditors about your IRS Tax Debt. It can devastate your credit report.

"I owe the IRS. What can I do to prevent them from filing a Tax Lien?"
The Tax Lien may exist before you know your Tax Debt exists! The assigned Revenue Officer makes a determination 30 days from when it's assigned to them. So preventing the Tax Lien is impossible. The "Notice of Federal Tax Lien" simply notifies your creditors about the Tax Lien.

But a Tax Lien is an Enforcement Action, don't they have to stop Enforcement Actions if you're paying or if you file for bankruptcy
The IRS does not consider filing the Notice of Tax Lien "Enforcement Action," they're not enforcing anything. Therefore, if it's not enforcement action, the removal of it is nearly impossible.

Is there ANYTHING I can do to release my Tax Lien?
The circumstances are very narrow. The Tax Lien that’s already in existence needs to get released based on agreement to the IRS. A Tax Lien that has been filed is NOT coming off. The only ways to remove it are:

-Pay debt in full
-The Debt Statutes expire
-Post a bond. Once you post a bond the lien will be released. This is highly unlikely way to settle though because if you can post a bond, then you can probably pay the back taxes owed and you wouldn't need a bond. I've never seen this happen- but it's in the book. So it's possible. Hypothetically.

Also, if you have a piece of valuable property, give them the deed and MAYBE the Tax Lien will be removed

"Will the IRS Subordinate my Tax Lien so I can get a home equity loan and pay my debt?"

"Subordination" is the wrong service. Not being able to get a home equity loan because of Tax Lien shows the IRS that you might not have the best credit. Many people that have excellent credit, save for the Tax Lien, can still get the loan. Additionally, if the IRS releases the Tax Lien, they feel you won't have incentive to use the loan to pay them back. In most cases, the IRS won't release the lien so you can get the loan.

Final Bit- I HAVE been able to use my knowledge as a former IRS Hitman to work with the system and prevent a Notice of Federal Tax Lien from being filed. This means there's a small glimmer of hope if you choose to work with a professional. Just keep in mind, Tax Liens collect millions for the IRS just by sitting silently at the court house. The IRS is not going to give them up without a fight!

Q&A with Richard Close, Answers to your Tax Lien Questions

Tax Lien Issues- Last night I held a lecture here at the office. Too busy to organize a subject and strapped for time, we made it a free-for-all Q&A. The questions gravitated towards "Tax Lien," a confusing subject for many taxpayers. I'll share the highlight reel with you.

I talk to companies that say they will remove the Tax Lien, no questions asked. Is this true?

Sorry, but NO! The companies promoting the easy removal of a Tax Lien are the same shady companies that sell Offer in Compromise for "Pennies on the Dollar." Tax Liens are automatically removed when you settle, so they just squeeze that in. This is just another shady selling tactic.

I talked with someone who sold their home to their ex for a dollar, and now the ex owes the $100,000 debt! How can this happen?

You're talking about a fraudulent transfer. He used a quitclaim deed to transfer the property to his ex wife for 1 dollar, "with love and affection," and now she's got the debt. Here's how this happens:

Fraudulent transfers like these leave a HUGE paper trail, it's easy for the IRS to find you.

Here are the hallmarks of a fraudulent transfer:

- asset (a house in this case) not sold at market value
- took place at time of existing/accruing debt
- the translation left you insolvent of the debt

You might be thinking, "I hate my ex, that @$#%- I'll transfer the debt to her and be FREE!" Nope, not that easy. The IRS will tell the ex either give the asset back to the original owner or they owe- so you know the asset is going back to you.

When someone's dies owing tax debt, will their estate go to the IRS- leaving the family with nothing?

In this example, a woman inherited a house from her father, and sold it. She made $3,000 from the sale, and now the IRS wants the money.

This depends on several things. By definition, the debt is settled by what the value of the estate is. However, if would cost more for the IRS to seize and liquidate the assets, they won't go after it. That takes a lot of man power on money on their behalf.

BUT, the inheritor sells or transfers the assets, they will be considered legally responsible for the property and the IRS will go after the equity, like in the example above.




Still have questions? Feel free to e-mail me if you have more questions. I answer all my e-mails promptly.

IRS Tax Issues: The Top 3 Most Requested IRS Forms and How They Save You Money

Knowledge is Power it sounds corny, but it's true. Most people don't have a clue when it comes to IRS rules and regulations. And naturally, few people have knowledge of the countless forms and documents the IRS requires taxpayers to fill out. So get out your pen and take notes, the more you know about the IRS the better.

The Top 3 Forms: These are the top 3 most requested IRS Forms according to the IRS
Form W-9 Request for Taxpayer Identification Number and Certification
Form Purpose: Use this to retrieve your Taxpayer Identification Number (ITIN)
How it Saves You $$$: Failure to Furnish your correct ITIN to a requester can result in a $50 penalty.

If you provide a false ITIN number with no reasonable basis to back you up, you may receive a whopping $500 penalty! Misuse of ITINs or falsifying information can result in civil and criminal penalties.

Form W-4
Form Purpose: This form lets your employer withhold the correct Federal Income Tax from your pay.

How it Saves You $$$: Be honest with yourself. If your employer doesn't withhold your taxes, will you take the initiative and withhold the taxes from your income? Probably not. And if the IRS doesn't get their cut, you could end up with a massive debt. If you have not filled out a W-4 form yet, let your boss know you need one A.S.A.P!

Form 1040 U.S Individual Income Tax Return
Form Purpose: Use this form to report your annual income to the IRS, as well as your annual deductions.

How it Saves You $$$: You need Form 1040 to receive your tax returns and itemize deductions. If you do not turn in Form 1040 and/or Form 1040 A annually you will be fined and penalized. This is one of the most important IRS Forms.

Why it's important: The IRS has to handle thousands of taxpayer's issues annually. The IRS is not designed for “customer service,” they are not going to patiently handle your issue for you. That means it's your responsibility to request information and handle your account. Knowing what forms to request is a huge step in the right direction.

The Deadline to Recieve a $8,000 Tax Credit is Approaching for First Time Home Buyers

House Hunting? If you bought you FIRST HOME this year, you could get receive $8,000 from the IRS! Considering the increased amount of foreclosures, this is a great time to get into your first home. But you have to do it fast, your deadline is December 1, 2009.

The Low-Down Here's the IRS's official overview on the First Time Home Buyer credit.

- Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.
- Applies only to homes used as a taxpayer's principal residence.
- Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
- Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

How much? The credit is 10% of the purchase price of the home for a maximum amount of $8,000 for 2009 ($7,500 for 2008).

You don't have to be a "Property Virgin"- For the purpose of this legislation, a "First Time Home Buyer" is someone who hasn't owned a principal residence for three years before buying a house this year.

I'm interested, Sign me up! Claim the credit with IRS Form 5405 and file it with your 2008 or 2009 federal income tax return.

The Catch This is the IRS we're talking about, and there's always a catch. If any of the following applies to you, you cannot claim the new credit.

- If you income exceeds the phase-out range. $95,000 or $170,000 filing jointly.
- You buy the home from a close relative (spouse, parent, grandparent, child, grandchild)
- You're a non resident alien
- You sell your home before the year ends
- You are (or were) eligible for the District of Columbia first-time home buyer credit for any taxable year.
- You owned a home any time during the three years prior to purchasing the new home

By the way, you can't use this as a down payment... a lot of folks have asked me if they can receive the First Time Home Buyer credit NOW so they can use the refund for a down payment. The IRS's answer is a flat "NO". They don't want people to claim the credit in anticipation of a purchase that has yet to happen. You won't qualify until the purchase is finalized.

And Remember you are not required to apply for this credit if you purchase a new home in 2008 on 2009. Don't want to bother with the paperwork? You don't have to. But it might be worth it to save up to $8,000 next year.

You've got less than 6 months to spare, if you want to buy, buy now!

Do You Have To File Your Tax Return If You Didn't Get A Paycheck?

Wishful thinking...Some people have the misconception that if you don't get a paycheck you don't have to file. Even if the only source of funds you receive is a social security check, sorry, you have to file your income taxes. But millions of Americans fail to file and end up with an IRS tax debt they didn't expect- and can't afford to pay.

Any exceptions? Whether you have to file is based on 4 requirements:

• gross income
  
• filing status
  
• martial status
  
• and age

Example of someone who doesn't have to file:
A single person, over the age of 65 whose gross annual income is less than $10,050.

For the sake of argument...But for the purpose this article we're going to assume that you did have to file taxes and you didn't. Now you have an IRS tax debt...so what can you do?

You've got to do what you've got to do...Obviously you need to file those back taxes before the IRS files them for you. But here are some things the IRS-Hitman can tell you about what you need to do to get those back taxes filed correctly, and keep the IRS from making your debt impossible.

Did you save that shoebox? Your tax records are the key to getting your taxes filed correctly. However, depending on how far back your unfiled taxes returns go you may have lost or thrown away any of your records. The IRS can give you the information you would need for income earned, but what about any deductions or credits you think you deserve.

If you have property, your bank would be able to supply you with any information about your mortgage including interest on the mortgage which you can claim on your taxes.

Were you taking care of your grandkids? You would need school and doctor records to prove the child lived with you for at least 6 months of the tax year in question.

Do you get money back? What if you file your back taxes and find out that you not only don't owe any money, but you are actually entitled to a refund? Hold your horses because you can only get refunds from back taxes that are from tax returns in the last 2 years. If a return is older than 2 years then you get nothing.

Substitute Filing... DON'T let the IRS file for you. They won't file in your favor, so you can kiss any deductions goodbye. Additionally, Substitute for Returns (SFRs) cause a lot of problems when you try to resolve your tax debt issues. For example, you cannot file Bankruptcy for any tax the IRS filed SFRs for.

Owing A Tax Debt To The IRS - 6 Ways To Keep From Drowning

No refund this year... After you've filed your income taxes you find out that you owe money to the IRS. Maybe the debt was from taxes on your business, or the debt is because you just claimed something or someone you shouldn't have. No matter how you've gotten the debt, it's there and you need to do something about it.

Here comes the cavalry... The Hitman wants to give you some help in this tough time and give you some steps to help you with this debt.

1. Make sure you actually owe the debt. Go back over you information and make sure you did the math right. If the IRS has audited you, you can always use the services of the Tax Payer Advocate Service to verify your debt is accurate. You will need to get all paperwork together to prove any tax deductions or tax credits that you claimed.

2. If your debt is accurate, don't panic and don't put off dealing with it. The IRS debt is not going to go away. Interest and penalties start adding on to the debt immediately and if you don't do anything the IRS will start taking more aggressive collection actions.

3. You can buy yourself some time. Send a written request to the IRS stating that you can't pay the tax debt right now. You'll be given a 45 day grace period before they start sending intent to levy letters and threatening collection actions.

4. Do something! If can borrow money to pay off the debt in full, do it! Owing your bank or a creditor gives you a better interest rate than the IRS does. Between interest and penalties the IRS is increasing your debt by about 25% per year.

5. If you can't get a loan you can try to negotiate with the IRS. For a complete list of the options for settling an IRS debt read my article, "Tax Problem Help: How to Give Yourself a Fighting Chance". If you feel too overwhelmed by the IRS bureaucracy then you can consider using a tax professional service to help you with the right plan.

6. Don't wait for the IRS to contact you! Because of the size of the IRS everything moves slowly, at first. When I was a Hitman some people wouldn't get notification of their debt for up to a year. And once you get that first notification we would have you targeted and then we sped things up. Not to mention interest and penalties would add on starting from day one of your tax debt.

One more thing... The best advice this reformed Hitman can give you is to act immediately! Don't put your head in the sand, and don't hope things will work themselves out. The IRS is not just a collection agency; they're not bound by State laws. They can take whatever they want from you, and they can destroy your life if you let them.

401K Withdrawal - Avoiding An IRS Tax Debt

Slump City: So, you're in debt and you can't pay it off. If you've got some money stashed away in a 401k, here's a few things you should know about that money.

No Taxes! When you put money into your 401k plan, you don't have to pay taxes; sounds good right? That's because income taxes must be paid on all withdrawals. The only way to avoid those taxes is if you rollover the money to another employer-sponsored plan or to an IRA. At age 59.5 you may tap into your account without a 10% early withdrawal penalty. If you leave a company and you are 55 or older, or disabled, you don't have to pay the 10% penalty.

Your Boss holds the Key! Most 401k plans only allow early withdrawal if it's for "financial hardship" purposes. Your employer determines his/her own definition of "hardship," which can be a good or a bad thing for you. Your employer may also use "safe harbor rules" which allow withdrawals for the following reasons:

1) To pay medical expenses

2) To cover down payment or to avoid eviction or foreclosure on primary residence

3) To pay college tuition

4) To cover funeral expenses for a family member.

Don't Forget, not all plans will let you borrow from your 401k. Plus, if they do let you withdrawal, you can only take 50% or less. So make sure you know your companies' 401k policies. Here are some of the rules and regulations for loans with your 401k program.

1) You must repay your loan within 5 years, unless you took out the loan to purchase your current residence.

2) The interest that you pay on your loan is subject to double taxation. That means that you pay the interest with after-tax money and it is subjected to taxes when you eventually withdraw it.

3) If/when you leave your company, you may have to pay back the outstanding balance in full. Otherwise, the outstanding amount will be subject to a possible 10% early withdrawal penalty.

4) If you default on your loan, the outstanding balance is also subject to a 10% early withdrawal penalty.

Fine Print: The most important thing is understanding the rules and regulations. If you follow them, you will never be caught off guard. Knowing the consequences can help you decide whether or not an early withdrawal is right for you. Depending on your situation, taking money out of your 401K may sound like the right idea, but it may put you in a worse spot than you were before.

The IRS Filed an $800,000 Tax Lien on John Kerry's 2004 Campaign, John Kerry may owe $80K!

John Kerry has to pay $800,000 in Tax Debt- What?
That's right, Senator John Kerry may have to pay over $800,000 to the IRS out of his own pocket. The IRS has filed a Tax Lien against the John Kerry's 2004 campaign for $819,000. A Kerry Campaign representative said the Tax Debt was already paid, but since the IRS tends to be certain a debt is owed before the Tax Lien is filed, this claim is likely erroneous. Here's the scoop...

John Kerry's Campaign and their $800,000 Tax Debt, their claim? "We're Innocent!"

"The IRS merely has a gap in their electronic records of the 2004 campaign's payroll forms," Kerry spokeswoman Whitney Smith told the Washington Times. "We filed these forms correctly, and we're working with the IRS to provide them any and all needed information to set the record straight."

According to Whitney Smith, the campaign received an IRS Notice on January 7, 2008, stating that the IRS was missing W-2 forms from them. The penalty noted at $819,000.
Whitney Smith said the campaign did in fact file the forms correct in 2004, but they filed them again in response to the IRS notice.

"We've checked with the IRS at least once a month since then asking why the issue has yet to be resolved," she continued. "We still don't have an answer."

The Kerry Campaign's $800,000 Tax Blunder from the IRS's Perspective

Federal Laws prohibit IRS employees from discussing individual cases, so more details about this case are off limits. But we do know how tenacious the IRS is when it comes to collecting their money. John Kerry's estimated net worth is at $284 million to $336 million, according to the nonpartisan Center for Responsive Politics. John Kerry's campaign accepted public funding, so we don't know if he'll have to pay the debt. But if he does, the IRS will see he can cover it and they will attack for the full amount!

A First-Time for Everything

As far as I know, this is a unique situation for the IRS. After all, this campaign is already terminated! But fair is fair, and a campaign is an employer and a business. If all other businesses have to pay taxes, so should the John Kerry Campaign.

Moral of the Tale If someone like John Kerry is vulnerable to the IRS collection methods, what makes you think you're safe? Take this high profile example as a lesson, and stay in compliance with the IRS?

I'll keep you posted as more information becomes available.

IRS Insider Reveals the Truth about Offer In Compromise

"Settle your Tax Debt for Pennies on the Dollar..." You’ve seen it on TV commercials and heard it on the radio. This program is called an Offer in Compromise (OIC). True, you can settle your Tax Debt for less with an Offer in Compromise. But it's not like settling your credit card debts. Settling Credit Card debt is easy, settling Tax Debt is next to impossible. But why?

Offer in Compromise, the Reality: The Offer in Compromise is based strictly on your ability to pay and the IRS’s ability to collect. It is 100% financially driven. What does this mean? If you can pay, the IRS will collect the full amount, not a settlement amount. Period.

Monthly Disposable Income: The IRS has a formula for determining if you qualify for an OIC. How much you have left over after you pay off your bills is your "Monthly Disposable Income," or MDI. MDI is where a lot of you will fall short, here's why:

Your housing/utility costs should not be over the IRS National Standards.

What's that mean? Let's say the National Standard for Mortgage/Rent in your area is $1,800, and you're paying a whopping $5,000. The IRS is going to count the difference, $3,200, as monthly disposable income! This means even if you're paying that $3,200 to keep a roof over your head and you only have $1,000 left over every month, the IRS will want you to pay over $3,200 per month to settle your Tax Debt.

But Why!? The IRS doesn't want you paying so much for housing that you neglect your tax obligations. And they certainly don't want to encourage taxpayers to raise their housing costs to lower their MDI and reduce tax payments. The IRS can't reward this type of behavior.

And Finally... IRS employees really don't want to settle your tax debt! They pay their taxes on time every year (or they'd be fired) so why shouldn't you?

What can I do? The odds are stacked against you. Before you consider submitting an Offer, make sure you even qualify. And if you qualify, consider working with a professional.

IRS Penalties Bleeding You Dry? Know and Defeat the Enemy

Killing you Softly: Penalties and Interest fees are devastating. More than punishment, these outlandish fees are a lucrative source of income for the IRS. If you want to keep your finances from being swallowed by ever-increasing tax debt, know your enemy- the dreaded IRS Penalties.

The Penalty Box:

Accuracy Penalties: The IRS can add a 20% penalty if they find you understated your income tax liability.

Fraud Penalties: If you fraudulently underreport your income the penalty is 75% of the underreported amount. Expect the same 75% penalty for failure to file your tax returns.

Failure to Pay Taxes Penalties: This penalty starts on April 16 for the unpaid amount. It can be as high as 1% per month on the balance due.

Late Filing of Return Penalties: The IRS can impose a penalty of 5% per month based on the the tax balance due, up to 25% total.

Combined Penalties: The IRS can impose a combined penalty of 5% per month for up to 5 months.

Stop the Bleeding: Apply for Penalty Abatement.

Penalties will grow unless you stop them. If you apply for Penalty Abatement you can stop the penalties and reduce your debt by thousands of dollars. But first, you have to qualify.

Qualifications- Reasonable Cause for Not Paying Penalties

- Serious illness of you or a family member.
- Unavoidable absence
- Business Records destroyed (by fire or other cause)
- Taxpayer's ability to make deposits or payments impaired by civil disturbances
- Lack of funds applies, but only when you can prove lack of funds occurred despite exercising ordinary business prudence.

Other explanations may be acceptable, but you have to prove you exercised ordinary business care.

Fight Back: How to request Penalty Abatement.

- Fill out IRS form 843, “Claim for Refund or Request for Abatement.”
- Include copies of documents that prove your case
- Make copies of any letter you send to the IRS

Warning: Assuming you jump the first hurdle by qualifying, winning in the penalty abatement game is tough. Make sure you provide plenty of supporting documentation to prove your case if you hope to win. And remember, you might reduce or eliminate the penalties on your debt, but you still have to pay the taxes owed!

Tax Resources for Small Businesses, Everything You Need to Prevent or Fix Business Tax Debt

Doomed to Fail- The IRS estimates that Small Businesses owe the most to the IRS. It's almost too easy for a small business to make a mistake, one small slip up and you could owe the IRS thousands!

Why the Trouble? The IRS doesn’t require a test for someone to start a business and receive their Tax ID number. They don’t need to display any knowledge of taxation to open a business and have employees. This is why small business owners can get into so much trouble with the IRS. You have to take responsibility and take advantage of the resources provided to stay above Tax Debt.

Tax Resources for Small Businesses:


The A to Z Index for Business- Just like the title suggests, covers a variety of subjects relating to the IRS and Business.

The IRS Small Business Resources Guide, 2009 This guide covers everything, from starting up, to preparing Tax Returns.

Tax Changes for Businesses - Stay up-to-date on the various Small Business Changes with news directly from the IRS.

Economic Stimulus Payment Info Center for Business- Find information on the business provisions of the economic stimulus payments.

Get the 2009 Business Tax Calendar- This Calendar will help you make quarterly payroll payments and other important deposits on time.

E-File for Business and Self-Employed Taxpayers- This is for helping you find the E-filing option to suit your business needs.

State Taxes- Business tax required by the federal government are tough enough. But you also need to know about you State Tax obligations. This source provides access to key resources that will help you learn about your state tax obligations.


Questions? If you don't have time to lose, consider working with a professional to resolve your issue. Business Tax Debt issues escalate into bigger messes quicker than they do with personal Tax Debt issues, so don't delay!