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.