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!
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.
A lien refers to a legal claim on a specific piece of property and it until the amount owed is paid off, whereas a lienholder is an individual or organization that makes a claim. In most cases, you may receive a lien in the form of a letter from the IRS or State Franchise Tax Board.
The parties involved can file a suit concerning any outstanding taxes due but, mostly, liens function as collateral in real situations where an individual cannot fulfill or meet their tax obligations.
Let us find out more about how the lien works and how you can eliminate it:
In short, paying back the total owed is still the best route to eliminate a tax lien. You will need to get a lien release statement that absolves your property and wages from any threat. After that, the statement is signed by the parties to ensure proof of payment and avoid possible judgment against it in the foreseeable future.
Generally, you can get rid of liens only through an individual or entity responsible for it in the first place. Here is how you can get rid of your IRS or State lien with certain exceptions:
Essentially, when it comes to a tax lien, you will have to pay off your amount owed to release from the shackles of your lien. Sometimes this may not be an option, however. Whenever you don’t have the means to pay off your balance due to financial hardship, the experts at GetATaxLawyer.com can find an alternative solution.
Your next option to get rid of your lien is to initiate basic negotiation with the IRS or State. Taking on the government alone can be scary and difficult though. You will need to convince them that you do not have sufficient funds to pay the amount you owe. There are many options for how you can significantly reduce your overall total.
If you disagree with the IRS or State Franchise Tax Board, it may make it harder to settle your lien. You can file a lawsuit against the lienholder for the release of the lien. However, many people end up drowning in paperwork and suffering from many headaches trying to do this on their own. Get relief fast with a tax lawyer on your side.
While you could try the aforementioned options, it’s more effective to hire a tax professional to take on the IRS or State on your behalf. No one understands the tax processes and laws better than the professional lawyers at GetATaxLawyer.com. Call 1-800-290-8160 for your FREE consultation today.
Hearing the word “audit” can give anyone a sinking feeling in their stomach, but luckily, audits are not as often as you may think. In 2019, the IRS audited 1 out of every 220 taxpayers, which was 0.45% of the total individual tax returns of the fiscal year.1 While more than half of those returns were filed by Americans whose income was over $1 million, it can still be useful to know of common IRS audit triggers to avoid getting flagged by the federal agency – especially as an entrepreneur.
As previously stated, fewer than 1% of taxpayers are audited and over half of them earn an annual income of over a million dollars. So, if you earn less than a million every year, the odds are in your favor of not being audited by the IRS.
The IRS has computer systems in place to calculate the math on tax returns, making math errors on returns is another common audit trigger you should avoid. It can notify the IRS if the addition or subtraction on your return is incorrect and can be prompted for further review. Double-check your social security numbers and your math so you won’t have to go up against the IRS.
It does not matter if a business shows major loss or profit, they must file tax returns. Failing to report your W-4s, 1099-MISCs, or 1040s can have you answering to the IRS – the same goes for any discrepancies. Even something as small as missing a signature can alert the IRS to audit you.
Business owners are required to report business income as their tax return by filing a Schedule C. This IRS form will calculate the profit or loss of your company, but it can also land you in hot water with the IRS, which is why it is important to keep proper documentation to back up your returns.
Under the Bank Secrecy Act (BSA), financial institutions must report to the IRS and other federal agencies large cash transactions exceeding $10,000 (daily aggregate amount).2 It is put in place to impede illegal activities such as money laundering or tax evasion. Therefore, if you run a cash-dependent business – like a convenience store, restaurant, laundromat, beauty salon, etc. – you are more likely to be audited.
Many taxpayers abuse home office deductions, so there are specific guidelines you must meet to prevent from being audited. For instance, if you regularly work in an area of your home meant exclusively for your business, you can deduct the cost of that space from your tax returns. Use IRS Publication 597 to help you evaluate whether or not you can claim a deduction for your home office.
Since the IRS knows this is another deduction taxpayers tend to take advantage of, the tax agency will take a closer look at your returns if you do so. Yes, small business owners have the right to claim business-related auto expenses on their return, but just like filing a schedule C, it is important to keep records of mileage and dates as claiming this deduction increases your chances of being audited.
Another common IRS audit trigger is claiming deductions on business travel, meals, and entertainment without providing credible business purposes. When deducting such expenses, it is important to provide not only the receipts but also a record of the persons in the attendance and the business purpose for each expense.
This one is quite obvious since it looks like you are nickel-and-diming Uncle Sam, but many taxpayers still try to get away with it! The IRS compares your itemized deductions to the average deductions claimed by taxpayers who are in the same bracket as you. If your total deductions exceed the average, it may place you under further scrutiny.
If your business’ profit increased by 30%, for example, between last year and this year, the IRS will want to find out the reason. There is nothing wrong with making more money, however, just like the aforementioned triggers, you would want to keep records on hand of the major increase in case you will need to answer to the IRS.
On the rare occasion that you receive an “invite” from the IRS to explain your latest returns, remember to breathe. Audits are not only rare, but they are also random, so you may not have to do more than just give a thorough explanation to the IRS. Upon receiving a letter from the IRS, our tax professionals highly recommend responding promptly while maintaining a professional tone.
Next, you will need to contact a tax lawyer at GetATaxLawyer.com, particularly when there is a large amount of money involved. Upon hiring our audit representation service, your tax attorney will go over the necessary documentation you need to prove the numbers on your return. The audit procedure primarily takes place via mail, so you will not be required to visit your nearest IRS office unless summoned. Communicating with the IRS will be primarily your attorney’s job, which is to ensure you walk away as unscathed as possible from the situation.
Dealing with the IRS or State can be terrifying, but with our team of tax lawyers at your side, the process can go by smoothly while hardly incurring any penalties. We have decades of experience fighting the IRS to ensure we get the best possible results for our clients, which is what you deserve when spending your hard-earned dollars. Contact our team today by calling 1-800-290-8160 for your FREE consultation.
While the state of coronavirus pandemic does not seem to be getting any better, the Internal Revenue Service has sent out well over 150 million stimulus checks as of April 15 – totaling $267 billion.1 Many Americans have already received their checks – even deceased Americans were sent stimulus checks – while millions of others are still waiting for theirs. Now that a good portion of the country has received their economic impact payment, there is one burning question that some may have: will I need to pay taxes on my stimulus check?
The simple answer is no. According to the IRS, “the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayer's refund or increase the amount they owe when they file their 2020 tax return next year. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs.”2 Essentially, stimulus checks are considered as a fully refundable tax credit for 2020, meaning it is not calculated with gross income and is not subject to taxes.
Even though you do not have to pay taxes on stimulus checks, the federal government requires you to have filed returns for 2018 and 2019 to receive an economic impact payment – if you are eligible.3
If you have not received your stimulus check and believe you are owed, the IRS states you can claim the amount as a credit when it is time to file 2020 tax returns. Likewise, if you only received a partial payment of your stimulus check, you could claim the difference as a credit when it is time to file your 2020 tax returns. For further assistance, you can contact the IRS Economic Impact Payment line at 800-919-9835.