Excluding Foreign Earned Income

Increasingly we live in a global environment. This means a U.S. taxpayer may earn income overseas. If so, there is an exclusion from gross income for foreign earned income. A taxpayer may exclude up to $85,700 of income earned overseas, overseas housing exclusion or overseas housing deduction. To qualify the taxpayer must fulfill certain requirements.

First, the home must be in a foreign country. Next the income must be earned overseas. Finally the taxpayer must be either 1) a U.S. citizen with actual residency in a foreign country that includes and entire tax year, 2) a U.S. resident alien who is a citizen or national of a country the U.S. has established a tax treaty who is an actual resident of a foreign country for an uninterrupted period of time covering a full tax year, or 3) a U.S. citizen or a U.S. resident alien who is living physically in a foreign county for a minimum of 330 days during any consecutive 12 month period.

This can become quite confusing and is best left to a certified tax professional. Great must be taken to make sure the qualified taxpayer receives the full benefit of the law under a foreign earned income arrangement. Tax liabilities can result if this is not handled correctly.

Self-employed Income

Self-employed individuals are often not sure of some of the many forms of “self-employed income” the IRS considers in their gross income calculation. As a result some self-employed borrowers incur a tax liability with the IRS due to the fact they do not claim these forms of income on their tax return. This comes as a great shock when the self-employed borrower gets audited by the IRS and is told their income was much higher than what was reported initially for the year in question.

Here are some types of self-employment income:
Sole proprietorship income and non-employment compensation
Fees paid to corporate directors
Partnership income from partnership operating business (unless limited partner)
Guaranteed payment from a partnership
Income derived from bartering
Rental income from real estate rent (if received as a real estate dealer)
Income paid to retired insurance agents based on commissions received prior to retirement
Interest received in a trade or business
Newspaper vendor’s income if vendor is 18 or over
Net earnings of members of the clergy (unless taken a vow of poverty)
Gains and losses by a dealer in options or commodities from dealing or trading in section 1256 contracts or property related to those contracts
A professional fiduciary who administers a deceased person’s estate

These are some sources of income self-employed individuals need to be aware of and make sure gets reported on their federal form tax return 1040 to avoid owing the IRS at some point in the future. If a taxpayer does have a tax liability as a result of under reporting then it would be advisable to contact a tax professional to inform the taxpayer of all options available to them for effective resolution.

Calling The IRS

Have you ever received a letter from the IRS concerning a tax debt and the letter told you to call the IRS in order for you to work out the problem with them? If so then you may want to exercise a little bit of caution before calling. Often times the person you will reach when you call will be very friendly and will ask you lots of questions. It will appear the IRS has your best interest at hand, but the likelihood of this being true is slim to none.

The person you reach at the IRS is trained to get as much information from you as they possibly can for the sole purpose of collecting the maximum amount of money they possibly can from you! All taxpayers have rights and most taxpayers do not know those rights. This being the case many taxpayers are taken advantage of due to their lack of knowledge and complete inexperience in dealing with the IRS. As a result they wind up paying more money than they ever should. If you receive a letter of this nature you would do well to contact a professional tax resolution firm to help with this matter.

IRS Collections

The IRS is the ultimate debt collector. Credit card companies can ruin your credit score and write you lots of nasty letters. Automobile finance companies can repossess you car and your bank can foreclose on you if you do not pay your mortgage. The IRS can take money directly out of your bank account and they can demand that your employer send them a huge portion of your paycheck if you owe the IRS money! They have the ultimate power to collect!

The IRS can also put a lien against your social security number thereby affecting your ability to obtain credit, and buy or sell a home as well as many other things. If you are faced with an IRS collection you need professional representation for several reasons. First, a professional tax resolution company can request an immediate “stay on collections” thus buying much needed time to fix the problem. And second, they can find the best resolution for your specific situation. The last thing you would ever want to do would be to wait and let the IRS pursue some of their collection actions.

IRS - Effective Tax Resolution

“I have an IRS tax debt and I don’t know what to do. What are my options?” As a tax consultant this is a question I am asked frequently. In consulting with clients I have determined clients are not aware of the many options available to them thru the Internal Revenue Service tax code. The options can be broken down into three primary categories. First, the taxpayer may qualify for an Offer-In-Compromise. This is the highly touted “pennies on the dollar” settlement. The truth of the matter is very few of these are ever accepted by the IRS, but this is a viable option.

The second category is Currently Not Collectible. This applies to a taxpayer who demonstrates they literally do not have the ability to repay their tax debt they owe the IRS. If accepted into this category the taxpayer is not obligated to pay the IRS monthly payments, nor does the IRS attempt to collect on the taxpayer. The IRS will review the taxpayer’s ability to pay from time to time however and may attempt to collect at some point in the future if the taxpayer experiences a substantial increase in income.

The third category is some type of negotiated Installment Agreement. This is where a taxpayer does not qualify for either an Offer-In-Compromise or Currently Not Collectible and some type of monthly payment arrangement is made. It is usually a good idea to have a professional tax resolution company conduct a thorough analysis of your situation to determine the best alternative you qualify for.

The IRS - Death and Taxes

We have all heard the saying, “Two things in life are for sure and that is death and taxes.” Whoever said that was definitely telling the truth. Tax problems can, and often do, follow a person to their grave. It is a good thing to resolve any and all outstanding tax issues you have. One reason for this is because it is simply the right thing to do. The other reason to do this is because your tax liability will not end when you die. The liability will attach to your estate and will be left to your heirs.

Yes this is true! Too many times “taxes after death” have claimed large portions of the deceased person’s estate because the tax liability was not effectively addressed when the person was alive. The liability grew so large that it consumed all of the wealth the deceased individual willed to their heirs, sometimes causing additional hardships. Don’t let this happen to you! If you have a tax problem call a tax professional and figure out a way to get the problem resolved before it’s too late.

IRS Federal Tax Lien

If you have been issued a federal tax lien you have basically two options to remove the lien. Paying the tax in full will get the lien released or getting an Offer-In-Compromise accepted. Despite what you hear or read a federal tax lien is difficult to remove. The IRS files tax liens to protect the government’s interest. Tax liens are usually filed when a taxpayer owes more than $25,000 to the government. Tax liens may or may not be filed if the amount owed is less than $25,000.

Sometimes taxpayers are unaware a tax lien has been filed. This can happen if the taxpayer has not received notifications from the IRS stating their intention to file a lien. Or the taxpayer may have years of unfiled tax returns and the IRS files the returns for the taxpayer, calculates the tax liability and files a tax lien. Either way this is a situation that requires professional assistance. The best bet is to call a professional tax resolution firm and have them evaluate your options.

IRS Tax Problems – Tax Returns

The federal income tax return is a complicated document that most U.S. citizens are required to file each tax year. Tax laws are very complicated and the rules are often hard to interpret and understand. Taxpayers sometimes find themselves in a position where they have not filed their returns for a few years. This is NOT a good situation to be in. The most important thing is to get unfiled returns filed QUICKLY!

Many complications can arise from returns that are not filed correctly. One of the most common problems is being audited. The IRS conducts a “tax match” on all returns filed with the IRS. The first thing the IRS system looks at is whether or not the income the taxpayer reported “matches” with what the IRS has on file. If it does not the return is “flagged” for further review. This can ultimately lead to an audit. When considering filling out your tax returns yourself you must be sure you have your income numbers correct.

One advantage to utilizing a professional tax firm to assist you with this is that the firm should contact the IRS to review your taxpayer history and retrieve all the income figures reported to the IRS that the taxpayer earned for the tax return years being completed. This is one of the BEST “tax tips” for anyone with unfiled tax returns. There are some really good tax professionals our there that can help you with this.

IRS Tax Debt

Do you have an IRS tax debt? If you do you may be asking whether or not you will ever be able to pay the debt off. Said another way, will this debt last forever? The answer is yes and no. An IRS tax debt, just like milk you buy from the grocery store, has an expiration date, which means at some point it will no longer be collectible, legally, by the IRS. While this is a good thing, the fact that you will not have to “pay forever” the IRS still has other options at their disposal.

It is entirely possible for a taxpayer to owe the IRS and let their collection expiration date expire and they are forever released from the tax debt. However, if the IRS believes the taxpayer has assets that at some point could be sold and the tax paid the IRS can have the tax debt reduced to a judgment against the taxpayer. A judgment is filed in the courthouse of the county in which the taxpayer resides and can be “renewed” every 10 years. Thus making the tax debt last forever.

If you have an IRS tax debt it is wise to have this analyzed by a tax professional to make the best determination as to what course of action would be best. The tax laws are complex and the options are many. A professional must be involved to handle these types of concerns. You should be able to find a professional tax resolution firm who provides a confidential tax consultation at no cost and who can help with whatever problem you may have.

IRS Tax Debt - Corporate Distributions

Taxpayers can develop tax debt problems from many different sources. One of those areas is corporate distributions. If you are the part owner of a corporation it is entirely possible incur a tax liability and never tangibly receive income from the corporation. This income, although never received directly, is reported to the IRS and needs to be recorded on IRS Form K1 and subsequently reported on the taxpayer’s federal form 1040.

Sometimes taxpayers overlook this when preparing their income tax returns. Failure to report this will most likely result in an increased tax liability. The amount of distribution reportable to the business owner is calculated by taking the total deposits and subtracting the total withdrawals for the year. The resulting number, either positive or negative, is then divided according to each business owner’s percentage of ownership and then reported on form K1 as a corporate distribution and is treated as taxable income.

This is something that happens to new business owners who may be unfamiliar with all the rules regarding corporate accounting. There are many other rules that must be followed to avoid incurring an IRS tax debt related to corporate matters. When in question it is always best to consult a tax professional.

IRS Tax Problems

Do you have an IRS tax problem? If so beware of calling the IRS for help. This could worsen your problem. Whenever you have a tax problem the IRS will send you a letter which usually contains a phone number for you to call for help. The truth of the matter is that the IRS will always be looking out for their best interest and not yours. Money magazine published an article addressing this issue that is worth reading.

IRS tax problems are complicated and are best left to tax professionals. A true tax professional will consult with you first to determine your situation and then give the proper advice as to how to correct your problem. Tax payers have rights and taxpayers have options. The role of the tax profession is to advise you of your options and enforce your taxpayer rights. When in doubt call a tax professional.