Every year around April 15, you'll hear Americans groan about “tax day." That's because federal and state income tax forms are due around that time. But have you ever wondered why you have to pay taxes?
In the United States, we have governments at the local, state, federal levels. These governments have various parts to them, including legislators, executives, judges, and many others. The money these government workers receive to do their jobs comes from taxes.
There are also different types of tax, too. When you work at a job to make money, you pay income taxes. Depending on how much money you make, a certain percentage of the money you make is withheld (kept out of your paycheck and sent to the government).
When you buy things at a store, you also usually pay sales tax, which is a percentage of the cost of the item charged by the store. If you own property, you also pay property taxes on the value of your property.
Paying your taxes is considered a civic duty, although doing so is also a requirement of the law. If you do not pay your taxes, the government agency that oversees taxes — the Internal Revenue Service (IRS) — will require you to pay your taxes or else face penalties, such as fines or going to jail.
The money you pay in taxes goes to many places. In addition to paying the salaries of government workers, your tax dollars also help to support common resources, such as police and firefighters.
Another reason why taxes are important is that it helps to ensure the roads you travel on are safe and well-maintained. Taxes fund public libraries and parks. Taxes are also used to fund many types of government programs that help the poor and less fortunate, as well as many schools!
Each year when “tax day" rolls around, many Americans must report their income to the IRS, using special tax forms. There are many, many laws that set forth complicated rules about how much tax is owed and what kinds of special expenses (or deductions) can be used to lower the amount of taxes you need to pay.
For the average worker, tax money has been withheld from paychecks throughout the year. On “tax day," each worker reports his or her income and expenses to the IRS.
Employers also report to the IRS how much they paid each worker, also known as payroll taxes. The IRS compares all these numbers to make sure that each person pays the correct amount of taxes.
If you haven't had enough tax money withheld from your checks throughout the year to cover the amount of tax you owe, you will have to pay more money to the government. If, however, too much tax money was withheld from your paychecks, you will receive a refund from the government.
Negotiating with the IRS can be a nightmare but with our tax lawyers in Los Angeles backing you, you can be sure to win your case. If you'd like to learn more about our tax relief services such as an IRS first-time penalty abatement, give our tax professionals a call at 1-800-290-8160 for your FREE consultation.
Many people are discovering they enjoy working from home. Should they pay higher taxes if they decide to stay away from the office even after the pandemic?
The idea was floated this week by a research team at Deutsche Bank (DB). It proposed a tax on remote workers once COVID-19 is brought under control to support the economic recovery and subsidize the wages of people in low-paid jobs who can't choose their place of work.
"The sudden shift to [work from home] means that, for the first time in history, a big chunk of people have disconnected themselves from the face-to-face world yet are still leading a full economic life," thematic research analyst Luke Templeman said in a new report.1 "That means remote workers are contributing less to the infrastructure of the economy whilst still receiving its benefits."
A Deutsche Bank survey found that after the coronavirus pandemic has passed,60% of people who started working from home during the pandemic want to continue doing so for two or more days a week.For them, the financial benefits of not commuting, buying lunch, or dressing for the office, plus the flexibility and convenience, outweigh the stress of having to juggle family and work or cope with a makeshift desk.
But Templeman argues that there's a big cost to the broader economy, which was designed to support in-person work.
To solve this problem, he proposes a work-from-home tax on 5% of wages. Employers would be responsible for the extra cost if they don't provide workers with permanent desks. If workers choose to spend part of the week at home, however, the tax would be deducted from their paychecks on a per-diem basis.
The cost would be roughly equivalent to expenses tied to going into work, such as commuting and lunch, Templeman said.
Governments could spend the money the tax raises on grants for low-paid workers who aren't able to work remotely, he added.
"Many of these people are those who assumed the health risks of working during the pandemic and are far more 'essential' than their wage level suggests," Templeman said.
He estimates that such a tax could raise $48 billion per year in the United States, along with £6.9 billion ($9.1 billion) in the United Kingdom and €15.9 billion ($18.8 billion) in Germany.
If you'd like to learn more about a possible work-from-home tax or need one of our tax lawyers in Southern California to represent you before the IRS, give a member of our staff a call at 1-800-290-160
It’s November, which means that there are only about five months until Tax Day. It may seem like a lifetime away, but it’s really just around the corner.
And if you think you’re going to owe money on your taxes this year, you only have a few months to start setting savings aside to pay that tax bill.
Here are the top 7 reasons why you should set money aside for taxes in the 2021 tax season when it comes down the pike next April.
If you got a raise or started a new job at a higher salary this year, congratulations! Although many Americans suffered career setbacks this year, some folks managed to negotiate their way to higher pay. In fact, employers expected worker compensation would grow by an average of 2.9% in 2020, according to WorldatWork’s 2020-2021 Salary Budget Survey, conducted starting in May this year.1
When your pay increases, so do your taxes. But unless your raise boosts your income into a new tax bracket, you probably don’t have to worry too much about a major tax increase. However, it’s still a good idea to check your withholding levels on your W-4. If you’re withholding too little, you could owe the IRS.
Many Americans received some form of unemployment benefits this year. But it’s important to understand that unemployment benefits are not “free money.” If you are currently receiving these weekly benefits, or previously cashed these checks, you may need to take steps now to avoid a nasty surprise come tax time.
Unemployment benefits are considered taxable income, even the $600 boost that was in effect until the end of July. While you don’t have to pay Social Security or Medicare taxes — typically about a combined 7.65% rate2 — while receiving unemployment benefits, you do have to pay federal income taxes and state taxes in some jurisdictions.
You’re not required to have taxes withheld from your unemployment benefits check, so it’s up to the individual to decide what they want to do. But experts say it’s a good idea to take the tax hit up front.
If you’re still receiving unemployment benefits, but haven’t requested taxes be withheld, you can request a change by filling out form W-4V (the “V” stands for voluntary). Depending on your state, this may be something you can do online through the benefits portal. A flat federal tax rate of 10% of the benefits paid can be withheld from each payment, according to the Labor Department.3
Another option is to withhold the taxes yourself by putting about 10% of the check into a savings account, similar to how freelancers should save part of their paychecks to put toward taxes.
This year many doctors, dentists, and optometrists have deferred non-emergency appointments and exams because of the coronavirus pandemic. But for many Americans, that means the funds they set aside for these routine health expenses have been languishing unused in flexible savings accounts.
So much so, the Internal Revenue Service announced earlier this year that it would allow employees to make mid-year changes to their health-care benefits.4 Under the new guidelines, employees can change health insurance plans and sign up for a plan if they previously waived coverage, as well as alter contribution levels to the health and dependent care FSA plans.
Typically, you’re going to pay less in taxes if you’re putting personal finance into these types of accounts. So if you suddenly stop or lower your contribution levels, it could increase your taxable income.
Saving for retirement is important, but some experts recommended lowering or even stopping 401(k) and individual retirement account contributions if you were really struggling this year.
Similar to FSA or HSA contributions, putting money in your 401(k) lowers your overall taxable income. If you stop these contributions, you may have more going into your bank account, but you’ll also be paying more in taxes.
It also may mess with the credits that you could be eligible for, like the retirement saver’s tax credit, which (depending on your income level) can be up to 50% of the contributions made to a Roth IRA or 401(k). Credits can ultimately lower your tax bill, so if you’re no longer eligible for them, you could owe more.
Earlier this year, lawmakers passed new rules under the CARES Act that allowed Americans to make early withdrawals of up to $100,000 from their retirement savings, including 401(k)s or individual retirement accounts, without the typical 10% penalty.
Referred to as “coronavirus-related distributions,” they are available only in 2020 and can be repaid over three years to avoid any income taxes on the funds taken.6 During the first half of the year, about 2.9% of plan participants took the newly created distribution, according to recent data from the Investment Company Institute.7
While you don’t have to pay any upfront penalties, you will owe income taxes on those withdrawals if you don’t pay the money back within three years. And if you took a larger lump sum out, it could take a while to re-invest.
While buying a home may not mean a higher tax bill — in fact, there are a number of tax incentives for first-time homebuyers — this type of purchase may change how you do your taxes.
If you became a homeowner this year, you may need to consider setting aside money for taxes in 2021. Being a new homeowner this year may impact your tax deductions since mortgages are usually the one personal expense that takes someone from utilizing the standard deduction to itemized deductions.
Itemized deductions can provide a bigger tax write-off, but require a bit more work when filing, he adds.
The CARES Act allowed federal student loan borrowers to temporarily suspend payments and dropped interest rates on federal loans to 0%.8 These protections are set to expire at the end of January 2021. While there’s no interest or penalties for not paying your federal student loans right now, you may also be missing out on a tax deduction.
Depending on your income, you may be able to deduct up to $2,500 in student loan interest from your taxable income. *10* Those eligible for the full deduction need to earn less than $70,000 a year if single and under $140,000 if filing jointly — the deduction phases out for those who make more than $85,000 if single and $170,000 if married.
Keep in mind, however, the deduction only applies to interest, so if you’ve been paying down the principal this year because interest rates have been zero, the deduction will not apply.
Ultimately, when it comes to taxes this year, you should ask yourself: Did the right amount of taxes come out of that income yet or not? If not, our Los Angeles tax attorneys recommend saving more money than you need to pay for your tax bill. To learn more about year-end tax tips or if you owe taxes and need an IRS lawyer to represent you before the IRS, give our tax team a call at 1-800-290-8160 for your FREE consultation today.
Even in 2020, jack-o’-lanterns and fake skeletons have popped up in neighborhoods as they do every October, although Halloween may look and play out differently this time around. According to the National Retail Federation, fewer people plan on partaking in Halloween activities, but those that do expect to spend more than usual—and that spending includes candy.1 After all, costume parties may be off the table, but there’s nothing stopping you from enjoying a nice evening at home with piles of nougat-based treats. And maybe passing out some of that loot to masked trick-or-treaters.
In other words, there’s no better time for a map looking at how different states impose sales taxes on groceries, candy, and soda.
Forty-five states and the District of Columbia levy a state sales tax. Of those, 32 states and the District of Columbia exempt groceries from the sales tax base. Twenty-four states and D.C. treat either candy or soda differently than groceries. Eleven of the states that exempt groceries from their sales tax base include both candy and soda in their definition of groceries: Arizona, Georgia, Louisiana, Massachusetts, Michigan, Nebraska, Nevada, New Mexico, South Carolina, Vermont, and Wyoming.
Six additional states (Arkansas, Illinois, Missouri, Tennessee, Utah, and Virginia) tax groceries at a lower, preferential rate. Three of those six include both candy and soda in the rate applied to those lower-taxed groceries. Arkansas and Illinois exclude soda and candy from the tax preference, taxing them at the standard rate.
The aim of a grocery exemption is to reduce tax burdens on necessities, particularly those which take up a large share of overall consumption for low-income consumers, which obligates states to decide which products are essential. When foods are categorized as necessities based on nutritional value, soda and candy are among the first products to be added to the “taxable” list. This raises obvious questions about a host of other food items like chips, baked goods, and ice cream. In the interest of narrowing the exemption to necessities, most states end up excluding certain foods and beverages.
Some state definitions can make food and candy taxation counterintuitive. Twenty-four states align with the Streamlined Sales and Use Tax Agreement (SSUTA), which determines that candy is different from other sweet foods because it comes in the form of bars, drops, or pieces, and does not contain flour. Base uniformity across states is good, but this particular definition leads to some interesting distinctions: If you bought a Hershey’s® bar, it would be subject to sales tax. If you bought a Twix® bar, it would be tax-free. Similar conundrums appear when you get into the difference in definitions between prepared food and food intended for off-site consumption: a rotisserie chicken would be taxed if it’s heated by a warming device but untaxed if it’s packaged and refrigerated.
Ultimately, states and consumers alike would benefit from a low, single-rate sales tax that captures all final consumer products. Such a tax would be easy to administer, providing a stable source of revenue through a neutral and transparent structure.
Taxes on groceries, candy, and soda is indeed tricky, however, our tax team at GetATaxLawyer.com make taxes as seamless as possible. If you'd like to learn more about sales tax or you need to be represented before the IRS, give our tax attorneys a call at 1-800-290-8160 for your FREE consultation today. Happy Halloween!
We only have two months left in 2020, but the Internal Revenue Service has already released a breakdown of the new 2021 tax brackets.
Each year, the taxman updates its individual income tax brackets to reflect inflation. There are seven brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.1
The 2021 tax brackets are marginal, which means that different portions of your income — up to a specified dollar amount — will be taxed at a different rate. These rates are in effect for 2021 and will affect the returns you file for that year in 2022. For 2021, the top tax rate of 37% will apply to individual taxpayers with income over $523,600 ($628,300 for married filing jointly).2
Meanwhile, single filers with income over $209,425 ($418,850 for married filing jointly), will fall into the 35% bracket. The 32% bracket will cover single taxpayers with income exceeding $164,925 ($329,850 for married filing jointly), while the 24% bracket will apply to incomes over $86,375 for singles ($172,750 for married filing jointly).
Single taxpayers with income exceeding $40,525 (or married couples who are over $81,050) will be in the 22% marginal bracket. Meanwhile, the 12% bracket will apply to incomes over $9,950 for single taxpayers ($19,900 for married filing jointly).
The lowest rate is 10%, and it applies to singles with income under $9,950 ($19,900 for married couples). The IRS has also increased the standard deduction for 2021, giving it an inflation boost. The standard deduction is a flat dollar amount that reduces the amount of your income that’s subject to tax.
Next year’s standard deduction for single taxpayers is $12,550, up $150 from 2020′s levels ($25,100 for married couples, reflecting a $300 increase from this year). Heads of households will also enjoy a bump to their standard deduction in 2021: $18,800, up $150 from this year. There is no personal exemption for 2021, as it was eliminated in the Tax Cuts and Jobs Act — the overhaul of the tax code that took place in 2018.
Our tax team knows how scary the IRS can be, which is why our full-service tax company here to help. Our team of IRS lawyers has decades of experience and knowledge of how to deal with the taxman. If you'd like to learn more about the new 2021 tax brackets or need an experienced tax lawyer to take on the IRS, get a tax lawyer with your FREE consultation today by calling 1-800-290-8160.
Your accountant probably doesn’t want you to pay your taxes with a credit card.
But there are special cases in which using a credit card for your tax bill may be a necessary last resort or help you save with bonus rewards. Here’s what you need to know about paying your taxes with a credit card, the consequences you could face in doing so, and how to determine whether it might be worth it for you this tax season.
The IRS provides a few third-party payment processing options for taxpayers who want to use credit cards. Under each of these processors, the following are additional fees to pay with your credit card for your tax payment.
Fees are higher for the following integrated IRS e-file and e-pay service providers:
These fees are for payments made directly through these payment companies, which you can find on the IRS’ website. You can also pay your taxes with a credit card if you use a tax preparation service with e-file and e-pay, such as TurboTax, though different — and generally higher — fees will apply.
The IRS does cap the number of card payments allowed. This is something to consider if you plan to make multiple payments toward your balance over tax season rather than one payment in full, or if you make estimated quarterly payments. The maximums vary based on the year and the tax forms you file, but generally Form 1040 payments are limited to two per year and Form 1040-ES estimated taxes are limited to two card payments per quarter. You can find the full rundown from the IRS here.
It is possible to pay your taxes owed with plastic, but does that mean you should? Here are a few questions to ask yourself before you decide:
With today’s average credit card APRs above 15% (and many reaching upwards of 20%), charging a large tax payment to your card without a firm payoff plan can lead to exponentially more money owed in interest over time.
If you already carry a debt balance which your taxes will only add to, using your credit card should only be a last resort — and even then, you’re probably better off working with the IRS to establish a payment plan or file an extension. These plans still carry interest and fees, but they’re much less costly than credit card interest you’ll accrue over the same payoff period.
If you’re facing a period of financial hardship and are unable to pay the taxman what you owe in full, an IRS attorney on our team can negotiate an IRS payment plan as the tax agency offers multiple payment options to make payments more manageable. When working with our tax lawyers, you must file an IRS Form 9465 before selecting one of the five types of installment agreements best suited for you. Before resorting to charging your balance to a high-interest credit card, apply for one of these first.
These payment plans work similarly to loans: you’ll pay your taxes owed over time (up to 60 months) through monthly installments. But they’re not free. There’s a one-time setup fee, as well as accrued penalties and interest until your balance is paid in full (you can find more information about specific costs on this IRS webpage).
You should also be wary of potential damage charging your taxes to a credit card could have on your credit score. Credit utilization ratio is a major factor in your score calculation, and if you charge a large amount in taxes, it could take up a significant portion of your available credit, resulting in a drop in your credit score.
If you’re planning to apply for a loan in the near future, refinance your mortgage or any other activity that could be affected by a temporary credit hit, you should take that into consideration.
If you need to carry that tax balance month-to-month, paying it off over time, your credit score could suffer longer-term damage. If you’re unable to get your utilization back to a healthy ratio quickly, that dip could turn into a long-term trend. And using up much of your available credit limit leaves you with little wiggle room if you find yourself in need of available credit in the future.
While you can pay your taxes with a credit card, it may not be the most cost-effective option or most beneficial for your long-term financial health, though there are exceptions for responsible credit users looking to earn extra rewards. It's recommended that you compare the fees and interest you’ll incur against any benefits you may get before making your payment.
To learn more about paying your taxes with a credit card or to get a tax lawyer to represent you before the IRS, contact a member of our team at 1-800-290-8160 today.
Every year, millions of people owe taxes. This number has increased due to the tax law changes that went into effect for the 2018 tax season.1 Lower refunds and more tax bills have taxpayers panicking and scrambling to figure out they are going to pay their taxes.
So what happens if you don't pay your taxes? What do you do if you can't pay them? The bad news is that there are some serious penalties if you don't pay them, but the good news is that there are options if you owe the IRS back taxes or you receive a tax bill that you can't afford.
Read on to learn more about your options.
If you don't pay your taxes, you can be subject to liens on your property and assets. The IRS can also seize that property if you still fail to pay and garnish your wages. The most serious cases can result in jail time for failure to pay taxes.
The penalties for not paying are certainly severe, but the IRS is willing to work with you, so your inability to pay your taxes doesn't have to result in punishment this severe.
If you can't pay your taxes, don't panic. You should still file on time and pay anything that you can to avoid penalties and interest, but if you can't pay the amount in full, there are options available to you.
The IRS can give you an extension of up to 120 days to file your taxes. If you know you will owe, you can request this extension to get extra time before your taxes are due.
You will accrue interest and penalties during this time, although the interest rate is quite low. It is currently 3%, which is the lowest it has been in nearly 10 years. There is no setup fee for this extension.
Once you file your taxes, you can request a payment plan from the IRS. This allows you to pay your tax bill over time.
A tax lawyer can help you set up an IRS payment plan and advise you of your options. They can also negotiate on your behalf with the IRS to get a payment that you can afford.
There are setup fees for payment plans and the amount of those fees depends on what type of plan you choose. The setup fee for a payment plan that uses direct debit from your bank account is the least expensive. In addition to the setup fee, there will also be penalties and interest.
An Offer in Compromise allows you to settle your tax bill for less than you actually owe. This is an option if your tax liability is large or paying your taxes would result in undue financial hardship. The IRS will consider things such as your income, ability to pay, expenses, and assets.
The IRS advises that you explore other repayment options before turning to the OIC. Consult with a tax professional to learn more about this option and whether it's right for you.
What happens if you don't pay your taxes? Possible fines, penalties, and prison time. The most important thing to remember is that if you can't pay, don't just ignore your taxes. Make sure you file on time and communicate with the IRS.
Get a tax lawyer today to help you understand your options and communicate with the IRS on your behalf. If you are in a situation where you are facing a tax bill that you can't afford, contact our attorneys today. We can help you resolve any tax issues that you have.
Believe it or not, tax relief scams are quite common. Unfortunately, most people think they're not as likely to fall victim to swindlers. Once targeted, victims often feel extemely upset with many questions.
To help you avoid tax relief scams, our team of tax lawyers in Orange County has identified several common strategies used by criminals and dishonest service providers.
Criminals posing as Internal Revenue Service (IRS) agents victimized at least 2.4 million Americans from 2013 to 2018, collecting upwards of $72.8 million along the way.1 Many IRS impersonators carry out their schemes over the phone.
Also known as voice phishing or "vishing," these scammers call people en masse, demanding payment for unpaid tax bills. They threaten to revoke innocent victims' driver's licenses, deport them from the country or arrest them if they don't pay up.
They often sound legitimate. You may be tempted to pay them, especially after they read out your Social Security number, address, birthday or other private information. Vishing scammers may purchase this information from cybercriminals via the dark web.
Phone scam perpetrators "spoof" their phone numbers, meaning they can appear to call you from any number. For example, your phone might indicate someone from the IRS is calling.
If someone from the "IRS" calls you, immediately hang up.
You've seen those commercials that promise to resolve clients' tax problems for "pennies on the dollar." The IRS does, in fact, settle some tax problems for less than what taxpayers owe.
Not everyone qualifies for these Offers in Compromise, however. Roughly 40% of all Offer in Compromise (OIC) applications were accepted by the IRS in 2017.2
Upon reaching out to seemingly-legitimate tax relief companies, they may promise that you'll qualify for an OIC. Their commercials or websites may be filled with testimonials of satisfied customers. You'll be disappointed once they tell you the IRS denied your application and demand payment for their services.
Before trusting any tax relief providers, be diligent in researching them. If they make obtaining an OIC sound easy, have bad reviews or promise to settle your back taxes for "pennies on the dollar," your best interests might not be in mind.
The tax relief industry is big. Unscrupulous service providers know this better than anyone. The industry is full of marketing companies that will shamelessly promise to help you, ask for your personal info, and auction it to other companies.
By surrendering your information to marketing companies, you risk identity theft. You may even pay these marketers for services despite the fact they can't legally provide them.
To avoid these profit-minded marketing companies, only speak with licensed tax attorneys. Ask for their license numbers. You can look up current attorneys on the State Bar of California's website. Don't hesitate to verify this information. After all, you're just being diligent.
Staffed by a team of tried-and-true tax lawyers in Orange County, GetATaxLawyer.com fights the IRS and state tax agencies on our clients' behalf. Whenever you need help negotiating with the IRS, our Southern California tax lawyers are always here to help you reach financial freedom. To learn more about tax relief scams, or to get a tax lawyer for problems with the IRS, give a member of our staff a call at 1-800-290-8160 for your FREE consultation today.
Victims of the recent Oregon wildfire and straight-line winds disasters will receive IRS tax relief from now until January 15, 2021. The IRS has announced its new tax relief efforts in response to the public declaration for individual assistance issued by the Federal Emergency Management Agency (FEMA).1
Business owners and residents in Clackamas, Douglas, Jackson, Klamath, Lane, Lincoln, Linn, and Marion counties qualify for tax relief as well as other taxpayers within areas added later to the disaster region. The current list of localities eligible for disaster is always available on IRS.gov.
The IRS tax relief for the Oregon wildfires victims will postpone specific tax-filing and tax-payment deadlines for those who reside or have a business in the disaster area. This also includes workers who are affiliated with a well-known government or philanthropic organizations that are assisting the relief activities. Certain deadlines falling on or after September 7, 2020 and before January 15, 2021, for instance, are postponed through January 15, 2021.
Third quarter estimated tax payment due on September 15, 2020 and quarterly payroll and excise tax returns due on November 2, 2020 are pushed to the January 15, 2021 deadline. Additionally, tax-exempt organizations, operating on a calendar-year basis, that had a valid extension about to run out on November 16, 2020, will be pushed to the new deadline. Penalties on deposits owed on or after September 7, 2020 and before September 22, 2020 will be pushed out as well – as long as those deposits were made by September 22, 2020.
For taxpayers who receive a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement timeframe, they should call the telephone number printed notice for the IRS penalty abatement.
If you have been affected by the Oregon wildfires, our tax attorneys at GetATaxLawyer.com have the tax law knowledge needed to not only lower your tax balance but to remove any penalties should you receive a notice from the IRS. With the wildfires wreaking havoc throughout the West Coast, our tax lawyers understand how difficult life can currently be and provide tax relief services desperately needed when dealing with the IRS. To learn more about disaster relief for Oregon victims or if you are struggling with other IRS problems, give our team a call at 1-800-290-8160 today.
Are you grappling with paying federal tax debt?
If so, you may have come across the IRS Fresh Start Program (or People-First Initiative) in your research and are wondering if this initiative can solve your problems.
What is the IRS Fresh Start Program, and can it help you settle your debt? The answers to these questions depend on you and your financial circumstances.
The first step to understanding how the IRS Fresh Start initiative may be able to help you is learning what it is and how you can qualify. Keep reading to learn more about this tax forgiveness program.
The IRS Fresh Start program can help individual taxpayers and small businesses who are struggling to pay federal taxes.
The program was established in its original form in 2011, but the IRS has expanded it by utilizing more adaptable Offer-in-Compromise terms.
Now, some of the most financially distressed taxpayers will have the opportunity to clear up their tax debt, perhaps more quickly than before.
An Offer in Compromise (OIC) is an agreement between the IRS and a taxpayer that settles the taxpayer's indebtedness for a lower amount than what is owed.
The IRS won't just accept any OIC. The IRS looks at the taxpayer's assets and income to decide on their collection potential. They will assess whether the taxpayer can pay in full as a lump sum or by another payment arrangement. These agreements are subject to the acceptance of legal requirements.
The IRS has implemented changes to the Fresh Start Program to address the many taxpayers who are struggling to pay their bills. The Fresh Start Program expansion focuses on financial analysis.
The changes also enable some taxpayers to resolve tax debt in as little as two years. This change is significant, as the taxpayers enrolled in the original program were faced with repayment terms over four to five years.
The Fresh Start Program was implemented to give taxpayers struggling with first-time tax debt another chance. The original program initiatives include:
A year later, in 2012, the IRS added to the Fresh Start Initiative. It became available to more taxpayers as the following revisions were implemented:
These changes implemented real-life situations into a program previously entirely based on specific formulas.
The IRS now considers the things that typically cause people to fall behind on taxes—living expenses, local tax debts, student loans—in their determinations.
You can qualify for the IRS Fresh Start Program if you can accept paying your tax debt over time through an installment agreement. You must meet the following parameters to benefit from the program:
If you qualify for the program, other bonus items may also apply:
Businesses are also able to participate in the IRS Fresh Start Initiative. You're eligible when:
As a bonus for qualifying, your business may be eligible for the abatement of particular penalities.
To apply for this program, you must follow all guidelines established by the IRS. First, you must file all of your tax returns—back and current.
If you have outstanding tax returns that you haven't filed, you can't request any of these repayment options. Once enrolled in the People-First Initiative, you also must elect to file all of your future tax returns on time.
When you have filed all of your tax returns, you can visit IRS.gov to enroll in the Fresh Start Initiative using the Online Payment Agreement tool. If you prefer to enroll by mail, you can access and file a Form 9465.
Enrolling in the program can be a complex undertaking. If you become overwhelmed and don't understand the process, you may not see through to the end.
To ensure that you've enrolled successfully, you should hire a tax lawyer at GetATaxLawyer.com to assist you in the process. We can help you disclose all of the requested information and avoid disclosing anything that may be used against you in an audit or criminal investigation.
Your tax professional will advise you on the best repayment option to apply for based on your situation.
So, what is the IRS Fresh Start Program? It's an option you should explore if you or your business is struggling to find tax relief.
You can avoid owing more back taxes and settle your tax balance more affordably when you enroll in tax relief programs like the People-First Initiative. However, specific parameters are surrounding the initiative, which is when our tax attorneys step in. We help guide you in the right direction with our knowledge of tax law and experience so that you can find financial freedom with the IRS.