American Tax Laws Can Be Intimidating, But A Little Knowledge Can Prevent A Lot Of Problems

Posted by Rana & filed under Tax & Bankruptcy Law Information.

The average American citizen can find tax laws to be very intimidating.  Because there are a multitude of tax laws, studying all of them could take years.  In fact, the study of federal tax laws would take even longer than that since very few of our tax laws are static; many are amended with each new tax year. 

Most Americans leave it up to their accountants to be well versed on federal tax laws.  Since tax laws can be complicated, this is probably the best method for most of us to use.  However, it is important that we take responsibility for learning the facts about the laws that most commonly affect us. 

One of the most important things to understand concerning tax law is that the responsibility regarding the payment of outstanding taxes falls squarely on the taxpayer’s shoulders.  Some people mistakenly believe that hiring a tax accountant ensures their taxes will be filed correctly.  However, even the most astute accountants can be prone to error.  If an accountant makes a mistake when computing a person’s taxes, the taxpayer is still responsible for any additional taxes due.  This may include paying any late fees or penalties incurred as a result of the error.

In the event that a taxpayer is unable to file or pay his/her taxes by the April 15th deadline, they may request an extension from the Internal Revenue Service (IRS).  The normal extension granted is for periods between 30 and 120 days.  If the tax debt is paid within this short time period, the balance may only accrue a small penalty and interest fee.  However, if this tax debt still remains unpaid, there are tax laws in place that can offer relief.  It is important to note that these options carry more of a penalty and a higher tax interest rate than the short extension explained above.   

Briefly, the most common methods of tax relief assistance are deferment, partial payment installments, and traditional monthly installments.  All of these programs charge the taxpayer interest and penalties based on the outstanding principle balance until the tax debt is paid off.  However, since deferment takes place over a longer period of time, the interest charged may be a lot more than with the installment plans.  The fourth option, bankruptcy, should be considered only as a last choice for Americans to pay off their tax debt.  This is mostly due to the devastating effect bankruptcy can have on a person’s credit rating. 

While none of the above options are desirable, nonpayment of taxes can have even worse penalties.  Tax law allows the government to take control of a person’s assets if they are in tax debt.  The property is used as collateral until the debt owed to the government is repaid.  The IRS can only seize enough property to cover what is owed.  However, when a lien is filed, the IRS notifies any other creditors the taxpayer has, which can negatively affect a person’s credit rating.  The drawbacks do not end there.  An IRS lien can continue to be seen on a person’s credit report even after the tax debt is completely repaid, making harder to receive credit in the future.  In addition, the taxpayer will have to pay any jurisdiction charges the government incurred while filing the lien.

Federal tax law also allows the government to use a levy as a way to secure repayment from those who are in debt.  A levy is different from a lien in that the property the government collects will satisfy the tax debt.  With a lien, tax law says that once the tax debt is paid, the property must be returned to the taxpayer.  However, if the tax debt is not repaid, the government has the right to auction off the taxpayer’s former belongings.  Common items that a government might place a levy against include homes, cars, and boats.  The government can also request a levy against a person’s wages or state tax refunds.

Taxes are one of the things American citizens cannot avoid.  Therefore, understanding tax law (as much as possible) is an important part of life in this country.  Knowing tax law can help a person avoid common mistakes, understand their rights if errors occur, and be aware of the options available in case a tax bill cannot be paid on time.  No one likes to think about paying taxes if they don’t have to, but studying a little now, can instill confidence in the knowledge of tax law in the future.

The IRS Takes a Very Dim View of Unpaid Tax Debts

Posted by Rana & filed under Tax & Bankruptcy Law Information.

They say there are two things you can be certain of in this life: death and taxes.  Unfortunately, with taxes, comes the possibility of tax debt.  It is all too common for people to find out they owe more in taxes than they have paid into the system.  Even more common, is not having the funds available to pay this tax debt.  In this situation, knowing available tax debt options is key to finding a workable solution. 

Tax debt is often the result of filing taxes past the due date or paying the taxes due late.  April 15th is the annual deadline for filing and paying federal taxes.  If a payment is received late or not received at all, the IRS will charge a hefty penalty on the amount that is owed.  Filing late equals a point 5 percent fee and, worse yet, late payments are charged another 4.5 percent fee.  Together, these fees combine to an interest rate of 5 percent. 

These fees will continue to accrue until the interest equals 25 percent of the net amount owed.  If the tax debt remains unpaid after a period of five months, the interest rate will continue to accrue at the rate of point 5 percent.  This means that the taxpayer will potentially owe considerably more than the cost of the initial tax debt.

In cases where the person does not respond to correspondence sent by the IRS regarding late payment, other actions, such as liens and levies, can be taken against the taxpayer’s personal property.  With a lien, the government can take possession of physical assets until repayment of the tax debt is satisfied.  However, they can only seize control of the assets that equal the debt owed.  This option is extremely difficult for many filers to deal with, especially because it can have a negative effect on their credit rating. 

A levy is similar to a lien except that with a levy, the government has the option to auction off the taxpayer’s personal property to reimburse the government for the tax debt owed.  With a levy, the IRS can also file a levy against a taxpayer’s future earnings or their state refund if they are going to be getting one.

These penalties can wreak havoc on a person’s financial situation.  Therefore, many people request tax debt relief, because they do not have the available funds to pay off the entire sum.  Luckily, there are options available to those in need of tax debt help.

The Offer In Compromise is one of the most appealing tax relief programs available to filers, who cannot manage their tax debt.  In fact, it is the only program the government offers where the filer ends up paying less than what they owe.  There are three ways in which this particular tax debt settlement program functions.  The first two are monthly installment programs.  In one version, the filer would pay a monthly fee to the government for a period of 24 months.  In the other monthly option, the filer would pay a monthly fee to the government until the statute of limitations on their tax debt expires.  The last option is to pay a lump sum to the government, which could cover a significant portion of what is owed.

While this offer is terribly enticing, only a small percentage of the population is eligible for this program.  It is a good idea to contact an accountant before applying to see if eligibility requirements can be met.  The Offer In Compromise is mostly reserved for those in great need.  It is free to receive and review the application, but there is a $150 fee to file an Offer In Compromise. Unfortunately, paying this fee does not guarantee that the taxpayer will be accepted into the program. 

Of course, finding ways to prevent tax debt in the first place is always advisable.  One of the best ways to do this is to pay more taxes throughout the year.  Employers take out taxes based on the number of dependents the employee claims.  It may be a good idea to have the employer take a few extra dollars out of each paycheck.  They can do this with the employee’s permission by lowering the number of dependants being claimed or by subtracting a set amount.

A self-employed person might want to use the services of an accountant to determine how much money to set aside each month for taxes to be paid at the end of the year.  Paying taxes quarterly instead of annually can also help a taxpayer manage their tax debt, and may even result in a reduction of the amount owed.

The IRS takes tax debt very seriously.  The penalties for late or non-payment can be very severe.  It is best to avoid these types of mistakes if possible.  However, if a person is unable to pay the taxes owed to the government on time, it is imperative to open a dialogue with them.  The IRS cannot offer tax debt relief or tax debt reduction to people who hide from them.  Take advantage of any help the government offers and then take steps to avoid similar situations in the future.


Tax Relief Programs For Those In The Financial Pressure Cooker

Posted by Rana & filed under Tax & Bankruptcy Law Information.

Tax season can be an especially trying time for many Americans.  A vast number of people have to grapple with the knowledge that they owe far more than they can currently afford to pay.  This knowledge can weigh heavily on their minds and hearts until they devise a plan of repayment.  Unfortunately, many people simply do not have the means to repay their tax debt.  For those in this situation, the United States Government has devised a series of tax relief programs.  An accountant can help you decide which program will be best for you.

A tax relief program does not necessarily reduce tax debt, but it can help efficiently manage the debt that is owed to the government. Each tax relief program comes with its own particular set of rules and regulations.  It is imperative to consider these factors when deciding on a program.  Nonpayment of tax debt can lead to penalties such as liens, levies, foreclosure, or late payment fees.

Although many tax relief programs are available from the federal government, the following are the four most common.  Two of the tax relief programs are similar in that they involve monthly payments.  In one tax relief program, the taxpayer can pay the government in monthly installments for 24 months.  In the other tax relief program, the government is satisfied if you pay a monthly fee until your debt is repaid.  The other two tax relief programs include a deferment plan or bankruptcy.  A deferment plan is a means of promising the government that the debt owed will be repaid; however, current financial circumstances will not allow repayment at this time.  With this type of tax relief program, the taxpayer agrees to repay their tax debt within a year.  In the final form, bankruptcy, the taxpayer claims that they simply cannot afford to repay any of their current debts.  This is the least attractive program as doing so can wreak havoc on the taxpayer’s credit rating.

There is a fifth tax relief program that is only available to a small percentage of taxpayers.  In certain situation, the government may grant an Offer in Compromise (OIC).  This means the taxpayer agrees to pay a portion of the taxes owed to the government.  The OIC is the only tax relief program that could actually reduce the amount owed to the government.

The Offer in Compromise has three different options for tax debt relief.  With the first, the taxpayer agrees to pay a lump sum.  This sum would be a significant portion of what is owed.  The other two options both involve making monthly payments.  With one, the taxpayer agrees to pay the government a monthly fee until 24 months have passed.  In the other option, the taxpayer agrees to pay the government a monthly fee until the Statute of Limitations on their debt has expired.

While the Offer in Compromise is generally appealing to most taxpayers, it is a tax relief program that is most commonly granted only to those who cannot possibly pay their tax bill.  There is an extensive form to fill out as well as a $150 application fee.  If you believe that you might qualify for this program, you should consult an accountant on the matter. 

Once the government has approved a tax relief program, it is imperative that the taxpayer pays what is owed. The government accepts a variety of payment options, such as credit cards, personal checks, electronic debit cards, and money orders.    Those who do not qualify for any of the tax relief programs available from the United States Government must devise a way to repay their debt to the IRS.  Many people seek outside financial assistance for this matter such as bank loans, low-interest credit cards, and payday cash advance loans.  Some may even borrow against a 401(k).  While liquidating personal assets can be emotionally painful, it is preferable to the government placing a lien upon those same items, since a lien would also have a negative effect on one’s credit rating. 

While none of these options sound particularly appealing, it is important to attempt to pay off as much of the debt owed as soon as possible.  Paying off a large chunk of tax debt early on will result in a lower amount of interest being added to what is owed.

 In an ideal world, no one would ever need to worry about owing back taxes to any government institution, but life is not always so simple. Mounting tax debts and liens against personal property make resolving tax debt an issue that cannot be ignored.  As they say, there are two things in life that you cannot escape: death and taxes.


Tax Help Is Available For Those Who Honestly Seek It

Posted by Rana & filed under Tax & Bankruptcy Law Information.

The New Year often brings with it the images of tax season.  For some, this means a nice tax return and imagining how it might be spent.  For others, this means a large tax debt and wondering how it will be paid off.  When dealing with tax debt in this type of situation, it is often helpful to seek tax help. 

Many people have found accountants to be the best source of tax help, since tax laws and the IRS forms are their specialties.  The fees associated with hiring an accountant may prevent some people from seeking tax help.  However, accountants spend years studying various tax-related laws and are up-to-date on the latest developments in accounting, which could save the client money in the long run.

Tax debt most commonly results when taxpayers do not withhold enough taxes from their paychecks.  Doing this gives the taxpayer bigger paychecks throughout the year, but may cause taxes to be owed at the end of the year.  It is always a better idea to withhold more taxes during the year with the hope of receiving a tax refund, than to end up owing a lot of taxes on April 15th.

People who are self employed often find themselves in need of tax help.  They are not required to withhold taxes from their own paychecks, thus many times they do not.  If this happens throughout the year, the amount of taxes they owe could be very high.  In situations like this, it may be a good idea to make quarterly interest payments to the government to help keep track of what is owed.

Sometimes, people require tax help due to late payment of tax debt or because they didn’t file on time.  Federal tax forms are due by April 15 of every calendar year.  Filing tax forms after this date means there will be a late fee.  There is a 4.5 percent fee for filing late and an additional point 5 percent fee for not paying the tax debt on time.  This amounts to a total possible fee of 5 percent, which can continue to accrue until the tax debt is completely paid.  The late filing penalty will continue until it reaches a cap of 25 percent of the net amount initially owed.  After five months, the delinquency fee continues accruing at the rate of point 5 percent.  Thus, the penalty amounts could potentially be quite expensive.

In the event that a person’s tax debt exceeds their financial capabilities, tax help is available from the United States Government in a few different ways.   

The most sought after form of tax help is the Offer In Compromise. This deal is very attractive to those who cannot pay their complete tax debt since it reduces the amount they owe.  It is important to note that most people will not qualify for this program, as it is very selective and usually applied to those who are in desperate need of assistance. 

Other forms of tax help come by way of tax relief.  The government will work with taxpayers who are unable to pay their entire tax bill by the deadline.  Taxpayers can do everything from filing an extension to setting up monthly payments.  The IRS wants its money, so it is very willing to offer tax help to those who need and ask for it.

When incurring tax debt, the one thing that should never be done is to not make a payment at all.  The penalties for nonpayment can be quite steep and could result in liens or levies being placed on the taxpayer’s personal assets.  Also, any late payment or nonpayment of a debt can negatively affect one’s credit report.  Once a person’s credit is determined to be “bad”, it is extremely hard to repair.  Having poor credit can prevent a person from receiving new loans in the future, which can make buying a home or new car very difficult.

It is not uncommon to need tax help these days.  Tax laws can be hard to understand, especially since they change frequently.  Fortunately, tax help is available to all taxpayers either from online sources, through the IRS, or through tax accountants.  For those who need additional tax help, the government offers tax relief programs and even tax-debt settlement in some cases.  Tax debt is never a pleasant thing to deal with, but having help, could make it a little more agreeable.

Tax Debt Reduction Programs Offered by The Internal Revenue Services

Posted by Rana & filed under Tax & Bankruptcy Law Information.

Many of us forget about taxes until April 15th rolls around.  As a result, some of us discover too late that we did not manage our tax debt efficiently.  When this happens, a tax debt reduction may be a viable means of repaying taxes owed to the United States Government.

There are actually only a few methods of tax debt reduction.  The most sought after form of tax debt reduction is the Offer In Compromise.  This program allows the taxpayer to pay only a portion of the tax debt owed to the Internal Revenue Service (IRS).  The total amount of the tax debt reduction varies according to the individual’s financial situation.

The Offer In Compromise program has three tax debt reduction repayment options.  The first two are similar in that the taxpayer agrees to pay monthly installments to the government.  These tax debt reduction payments continue for either 24 months or until the debt has reached the Statute of Limitations.  The third option of the Offer In Compromise involves a debt settlement with the IRS for a partial amount of the tax debt owed.  This amount is then paid to the IRS in one lump sum payment. 

Unfortunately, the Offer In Compromise tax debt reduction program is not available to everyone.  This is a need-based tax debt reduction program and it is highly selective.  To receive information and an application regarding this program, the taxpayer need only contact an accountant.  However, there is a $150 fee that the taxpayer must pay if he/she decides to file.  For those who live at the poverty line, this fee may be waived; but all other taxpayers must pay the fee prior to filing. Considering the hefty application fee and the selectivity of the program, it is advisable that taxpayers consult an accountant or tax professional before applying for this tax debt reduction program. 

The government offers four tax relief programs to help taxpayers manage their unpaid tax debts.  In the first program, the taxpayer can pay their tax debt in monthly installments.  However, tax installment plans are not always attractive to filers because the debt continues to accrue interest as long as there is an outstanding balance.  This could result in a high amount of interest being paid over time.  There is a newer version of this installment plan, though.  On January 17, 2005, the IRS added an additional payment option called The Partial Payment Installment Agreement (PPIA).  This plan allows taxpayers to enter into a monthly installment agreement with the government that could result in partial payment of the tax liability.

The government also offers a deferment program wherein taxpayers agree to repay their outstanding tax debt within the next year.  This option is for taxpayers who do not currently have the funds to pay the amount owed, but will have it within the next few months.  The final, and least attractive form of tax relief available is referred to as bankruptcy.  This should be a filer’s last option.  A bankruptcy may alleviate current financial burdens; however, it can also prevent new credit from being procured for at least ten years in the future. 

Tax debt reduction help can come from outside sources as well.  Taxpayers who cannot afford to pay their tax debts on time may apply for a loan from a bank or loan agency.  Others may take out a payday cash advance from their credit card companies or borrow money from friends or family members.  These options may not sound like forms of tax debt reduction, since the full amount of tax debt is being repaid; however, these options can prevent the taxpayer from being charged steep penalties and late fees by the IRS. 

Consequently, the best form of tax debt reduction is to manage finances well during the tax year.  Many people simply don’t have enough taxes withheld from their paychecks each pay period.  Indeed, claiming the maximum number of dependents can result in a larger monthly paycheck; but doing so may also result in more tax debt at the end of the year. 

In the long run, it is better pay more taxes throughout the year than to owe more than can be afforded on April 15th.  However, for those who are in need of a little help come tax season, the government does offer a tax debt reduction service.  A professional tax accountant can assist taxpayers in finding the program that best suits their needs.