Friday, February 27, 2009

File Your Tax Return On Time

Tax time is here and you need to file your tax return on time! Failure to do so can be very expensive. Most taxpayers know the IRS will penalize you if you do not file your tax return on time. Most taxpayers do not know what the penalties are or how they accrue.

The IRS applies at least two types of penalties to taxpayers. If a return is filed late the IRS will assess a Failure To File penalty. This penalty is 5% of the amount of the tax due the date the return should be filed and accrues monthly (5% per month) for 4 ½ months. If the tax is not paid when the return is due then the IRS will apply a Failure To Pay Tax penalty, which is ½ of 1% per month and continues for a considerable period of time.

When both of these penalties are combined along with interest, the tax liability can begin to grow at a rate that would stagger the mind. This accounts for some of the horror stories you hear about people getting in trouble with the IRS. So the advice here is be sure to FILE YOUR TAX RETURN ON TIME. If you need help call a tax professional.

Tax Attorney

From time to time I have people call me asking if I am a tax attorney. The first thing I tell them is that I’m not. The first thing I ask them is why they feel they need a tax attorney. Sometimes people feel only a tax attorney can help them with their tax matters when really all that is needed is a true tax professional. For the most part tax attorneys represent taxpayers in tax court or some other tax matter that is criminal in nature.

Most of the problems taxpayers have are related to not filing a tax return or simply owing the IRS money and not being in a position to pay their tax liability in full. These situations can be resolved quickly without the highly skilled services of a tax attorney. It is best to obtain a good consultation from an experienced professional tax resolution firm first before trying to get an attorney involved. A good tax consultant will advise whether or not a tax attorney is needed.

Friday, February 20, 2009

Tax Professionals

Do you have a problem with the IRS or your state department of revenue? Is your problem so complex that you need the services of a professional tax resolution firm? If so choose carefully! Not all professional tax resolution firms are the same.

It pays to research the company you are considering. The Better Business Bureau is a great place to start. Most companies will have some type of negative information reported on them. This is normal. You are looking for problems that are reported in excess.

Another way you will be able to tell whom you should work with is by the quality of the initial phone conversation you have with a tax consultant. You may feel reasonably comfortable if the tax consultant asks you detailed questions about your situation and then gives you very high quality information as to how your tax liability can get resolved.

Just be aware of the fact that not all tax resolution firms are the same and no two tax consultants are the same. Many talk a big game. Remember the devil is in the details.

IRS Penalties

It won’t be long before April 15th is here. As almost everyone knows this is the deadline to file your federal income tax return. It is very important to file your returns by this date! If not then the IRS will assess a failure to file penalty against you.

Likewise if you fail to file by April 15th and you owe the IRS money and don’t pay then the IRS will assess a failure to pay penalty against you.

These penalties can be quite significant. I work in the tax resolution field and I see this problem with people all the time. My only word of advice is this…FILE YOUR TAX RETURNS ON TIME and pay whatever amount you owe BY APRIL 15th! You will save yourself a lot of money and a lot of headache!

Friday, February 13, 2009

Independent Contractors Beware

If you are an independent contractor you need to beware of a very dangerous pitfall. The pitfall I am referring to is making the decision to pay your subcontractors in cash and not report their earnings to the IRS. The consequences of not doing this can be quite severe especially if you have not filed your tax returns in quite a while. Consider the following story.

Bob, an independent contractor, has not filed his taxes in a while. In 2005, one of the unfiled years, he had a job that paid $250,000. He hired 5 subcontractors and paid each one $30,000 in cash and did not report this to the IRS. He paid an additional $60,000 for materials and various other expenses. All in all Bob received $250,000 and paid out $210,000 (5 subcontractors at $30,000 and $60,000 in materials and expenses). He did not do any work other than broker the deal for which he made $40,000. Not bad!
In 2009 the IRS sends Bob a HUGE tax bill listing his income as $250,000. With penalties and interest his tax bill is nearly $75,000! He says, “Wait a minute, I only made $40,000, not $250,000. I paid some guys to do most of the work.” The IRS says, “Prove it.” He can’t. He’s in deep trouble and needs a tax professional. Independent contractors beware! Don’t fall into this trap!

IRS Tax Debt Loans

Working as a tax consultant for a tax resolution firm is a very interesting profession. In my position I see people striving to come up with creative ways to “finance” their IRS debt. Amazingly enough the best source of financing such a debt turns out to be the IRS itself. Whenever a taxpayer owes money to the IRS they usually wind up getting into some type of installment agreement.

Taxpayers will borrow money from various sources to pay the IRS to avoid “owing” the IRS. They may resort to refinancing their home, taking out a home equity line of credit, credit cards or borrowing from their 401K or a life insurance policy. What most people may not realize is that the interest rate on an IRS installment loan can be lower than 6%! And better yet you don’t have to have your credit checked. If you need an installment agreement with the IRS call a tax resolution firm and let them negotiate it for you. It’s not a bad investment!