Year End Tax Considerations

Posted on December 2, 2014 by Kursti Nakagawa

Important Year End Tax Considerations

Important Year End Tax Considerations – Although tax planning is important all year long, it is especially important at the end of the year. End of the year tax moves such as accelerating or postponing income, balancing capital gains and losses and placing funds in tax deferred accounts have the potential to produce significant tax savings. On the other hand, failing to consider such tax planning options could very well result in paying taxes in excess of what would otherwise be owed.

Consider deferring income into 2015. This tax planning strategy provides a tax advantage if you expect to have an equivalent or lower income in 2105 and the deferred amount will not push you into a higher tax bracket for that year. Self-employed individuals may have the option of deferring income by sending out billing statements late in 2014 so they are not paid until after the first of the year. Although employees have less flexibility, they may be able to defer the receipt of year-end bonuses.
Consider realizing capital losses. This tax planning strategy can be used to balance either capital gains or ordinary income. Capital losses can be used, dollar for dollar, to offset income up to a maximum of $3000 or to cancel capital gains that have been realized during the year, If not used, the losses can be carried forward to future tax years with no time limit.
Pay attention to the Alternative Minimum Tax. Pay attention to the income threshold for the Alternative Minimum Tax so that you do not cross it unnecessarily by accelerating deductions or deferring income. In addition, make sure that any tax planning strategies take into account the fact that certain deductions such as property taxes and local and state income taxes are not allowed under the Alternative Minimum Tax.
Consider increasing IRA and 401(k) contributions. One potentially significant year-end tax planning move is to reduce taxable income by increasing contributions to IRA and 401(k) plans. The maximum amounts allowed for 2014 are $17,500 for 401(k) plans and $5,500 for IRAs ($23,000 and $6,500 respectively for taxpayers over 60). IRA contributions for 2014 can be made through April 15, 2015.
Check the balances in flex spending accounts. Checking the balances in flex spending accounts is an important year-end tax planning task because the balances are often forfeited if not used before December 31^st. Because funds contributed to flex spending accounts are not taxed but are lost if they are not used, it is important to budget the amounts that will be placed in these accounts for 2015.
Take any required Regular Minimum Distributions. The IRS requires that taxpayers who are 70 ½ years old take required Regular Minimum Distributions from their IRAs beginning on April 1^st the year after they arrive at that age. Avoid the 50% excise tax penalty the will be imposed by taking required Regular Minimum Distributions before the December 31^st

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

Reality Stars Suffer the Consequences of Back Taxes

Posted on October 15, 2014 by Kursti Nakagawa

Reality Stars Suffer the Consequences of Owing Back Taxes

Reality Stars Suffer Consequences of Back Taxes

Reality Stars Suffer the Consequences of Back Taxes – The recent indictments of reality television stars Mike Sorrentino and Teresa and Joe Giudice highlight the importance of staying current with the IRS. All three, together with Mike’s brother Marc Sorrentino, were charged multiple offenses that included failing to file federal tax returns, misreporting income and underpaying income taxes. While these individuals operated under the radar for years, their attempts to avoid paying income taxes eventually caught up with them. They now face serious consequences that seem much more painful that paying the back tax balances they originally owed.

Jersey Shore star Mike Sorrentino and his older brother Marc, who was acting as his financial manager, were recently indicted for failing to pay a back tax balance on income of over nine million dollars earned over the last five years. Although both Mike and Marc claim that their accountant is to blame for their tax troubles, they have not been able to convince the tax collection authorities that this is the case. Among other things, the brothers have been charged with 1) grossly underreporting millions of dollars of income earned from promotional television appearances, 2) funneling business proceeds into personal bank accounts, 3) claiming various personal items such as expensive clothes and cars as business expenses and 4) failing to report cash payments made to various booking agencies. If convicted, the Sorrentino brothers could face multiple years in prison for evading the payment of taxes on income earned during the time period under scrutiny.

Occurring almost concurrently with the indictments of the Sorrentino brothers, Teresa and Joe Giudice, stars of another reality show, the Real Housewives of New Jersey, were convicted of similar charges of tax evasion together with charges of mail fraud, wire fraud and bankruptcy fraud. The couple plead guilty to submitting fake W-2 forms to obtain mortgages, using the phone to bilk cash from banks and falsely reporting income and assets in bankruptcy proceedings. In addition, Joe was convicted of failing to file federal income tax returns over a period of four years resulting in a back tax balance on income of nearly a million dollars. The couple recently negotiated a plea deal and will begin serving consecutive prison sentences.

The cases of both the Sorrentinos and the Guidices illustrate the negative consequences of ignoring tax deadlines and failing to pay back tax balances. The Internal Revenue Service is a very powerful collections agency and will resort to forceful collection activity if income taxes are not paid in a timely manner. When faced with a back tax balance, the worst choice a taxpayer can make is to ignore the problem and hope that it will go away. In light of increasingly sophisticated collection techniques, the possibility of this happening is very unlikely. The IRS will begin by assessing penalties and interest and will follow this by more aggressive techniques including tax liens, tax levies and wage garnishments. If none of these actions result in payment of the back tax balance, the taxpayer may face criminal prosecution for willfully evading the payment of income taxes.

Know Your Tax Settlement Options

Posted on September 4, 2014 by Kursti Nakagawa

Know Your Tax Settlement Options

Know Your Tax Settlement Options – Concurrently with stepping up their efforts to identify taxpayers who owe back taxes, the IRS has been introducing new tax settlement programs to help these individuals resolve their tax debts. Because ignoring overdue taxes can result in such serious consequences as wage garnishments, tax liens and tax levies, in addition to the accrual of interest and penalties, delinquent taxpayers should be encouraged to resolve their back tax balances as quickly as possible. The worst choice a taxpayer can make is to ignore an outstanding tax liability and allow the consequences imposed by the Internal Revenue Service to escalate!

The following list outlines some of the alternatives available for resolving a back tax balance:

Paying the Balance in Full When sufficient liquid funds are not immediately available to pay the full balance of a tax debt, a delinquent taxpayer can often pay a the entire amount by applying for a bank loan, charging the outstanding tax balance to a credit card or taking money out of a retirement account.

Requesting an Extension A taxpayer who will have the necessary funds to pay a back tax balance within 120 days can request a short term administrative tax extension. Although interest will continued to be charged during the period of the extension, the IRS will not impose penalties or initiate enforced collection activities during this time.

Applying for a Penalty Waiver A Penalty Waiver is tax settlement option offered by the IRS for the purpose of reducing or eliminating previously assessed penalties. Penalty Waivers are normally granted only when a taxpayer is able to show that they were unable to fulfill their tax obligations due to circumstances beyond their control. (winandoffice.com)

Requesting an Installment Agreement An Installment Agreement is a tax settlement option that allows a delinquent taxpayer to pay off a back tax balance in installments when they are unable to pay the full amount at one time. Such an agreement is approved almost automatically if the total amount of the tax debt is less than $10,000 and the taxpayer is in good standing with the IRS. The length of the repayment period and the size of the installments are generally based on the total amount of the back tax balance together with the taxpayer’s financial situation.

Negotiating a Partial Payment Installment Agreement A Partial Payment Installment Agreement is a tax settlement option whereby the IRS agrees to accept partial payment of an outstanding tax liability. Because the collecting tax agency is agreeing to settle a tax debt for less than the full amount owed, the delinquent taxpayer is required to submit documentation substantiating the fact that they are financially unable to pay the full balance of the debt. The payment terms of a Partial Payment Installment Agreement are normally based on of the amount of the back tax balance in addition to the financial condition of the taxpayer requesting settlement.

Submitting an Offer in Compromise The Offer in Compromise is another tax settlement alternative that enables a delinquent taxpayer settle a tax debt for less than the full amount owed. Although it can be an excellent way to resolve a back tax balance, the qualification criteria are very specific and are strictly adhered to. In order for an Offer in Compromise to be accepted by the collecting tax agency, the delinquent taxpayer must submit documentation showing that they will be unable to pay the full balance of their tax debt within a reasonable amount of time.

Qualifying for Innocent Spouse Relief Innocent Spouse Relief is a tax resolution option that is available to a spouse who has incurred a tax liability on a joint tax return due to items improperly reported on the return by the other spouse without their knowledge. Such items could include the omission or inaccurate reporting of income or the misuse of tax credits or tax deductions, among other things.

If you have a back tax balance that you are unable to pay, our tax settlement professionals will assist you in resolving it. Visit us today at www.professionaltaxresolution.com for more information about our services. With over 50 combined years of experience in the business of resolving tax debt, we can help you determine which tax settlement option will be the best fit for your specific set of circumstances. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

Do Not Ignore Mail from the IRS….

Posted on June 17, 2014 by Kursti Nakagawa

Ignoring Communication from the IRS Brings Serious Consequences

Why You Should Not Ignore Mail from the IRS – Although the issuance of an IRS Notice of Deficiency is usually the first step in the collection of an outstanding tax liability, ignoring it can have serious consequences. The Notice of Deficiency is an official communication from the IRS informing a taxpayer that the tax amount due shown on their tax return is less than the amount owed according to the calculations of the IRS. Because the IRS is allowed to collect a tax debt without proof that the debt exists, a taxpayer who receives an IRS Notice of Deficiency must either pay the tax liability shown on the notice or file a petition with the United States Tax Court contesting the tax amount owed. The burden of proof rests with the taxpayer.

A Notice of Deficiency is a formal written communication from the IRS. It is sent by certified or registered mail to a taxpayer’s last address of record for the purpose of announcing a tax deficiency. It must include an explanation of the deficiency together with a statement of the total amount of taxes, interest and penalties that have been assessed. In addition, the Notice of Deficiency informs the receiving taxpayer of their appeal rights with the United States Tax Court and states the cutoff date for filing an appeal. Although a IRS Notice of Deficiency is most often sent when there is a discrepancy between IRS calculations and the tax amount due shown a on a tax return, it can also be sent when no tax return has been filed.

A taxpayer must respond to a Notice of Deficiency within 90 days from the date it was mailed or within 150 days if it was mailed to an address outside of the United States. The taxpayer must either pay the assessed tax liability or to file an appeal with the United States Tax Court. Once the appeal deadline has passed, the appeal process is closed and the IRS has the authority to collect the tax amount owed. At this point, the IRS is likely to issue a Notice of Intent to Levy. The Notice of Intent to Levy allows a response time of 30 days (which is not required if the IRS determines that collection of the tax debt is in jeopardy), after which a taxpayer’s property can be seized to cover their tax debt. A taxpayer’s only option once the 90 day appeal deadline has passed is to pay the tax balance owed and apply for a refund, although even this action may not stop the collection process once it is set in motion!

Because tax law is complex and receiving an official communication from the IRS can be intimidating and sometimes confusing, it may be advisable for a taxpayer to enlist the services if a qualified tax professional before responding to a Notice of Deficiency. A CPA or Enrolled Agent will be able to determine whether the tax amount shown on the Notice of Deficiency is accurate and will be able to communicate effectively with the IRS on the taxpayer’s behalf.

If you have received an IRS Notice of Deficiency, a Notice of Intent to Levy or have been officially warned of an impending tax lien or wage garnishment, we can help you stop the immediate collection activity and work toward resolving your tax debt. Visit www.professionaltaxresolution.com to learn more about full range of tax settlement services. Contact us today at (949) 596-4143 or email us at info@protaxres.com to receive a free, no obligation consultation and get the tax relief you deserve.

Tax Deadline for Citizens Living Abroad

Posted on June 12, 2014 by Kursti Nakagawa

Tax Deadline for Citizens Living Abroad

Tax Deadline for Citizens Living Abroad – The tax filing deadline for United States citizens living abroad is on the horizon. That deadline is June 15^th (pushed to June 16^th for 2014). This automatic two month tax extension is granted to all overseas residents and does not require an extension request. The only condition for claiming the extension is for the taxpayer to attach a written statement when the return is submitted stating that both the primary residence and main place of business are outside of the country.

If a taxpayer residing abroad is unable to file a tax return within the automatic two month extension period, they must then file a written request to gain an additional four month extension. Although neither a late filing penalty nor a late payment penalty will be assessed on any returns covered by these extension periods, interest will normally accrue on any tax amount owed. As is true for taxpayers residing within the United States, all tax returns for United States citizens residing outside the county must be filed by the October 15^th tax extension deadline.

The United States is one of a few countries that requires its citizens living abroad to pay income taxes. This filing requirement applies to any United States citizen who earns more than $10,000 ($20,000 for a joint return) in any given year. Although rule applies even when some or all of the income is earned outside the country, certain income earned from foreign sources is exempt from taxation. In addition, taxpayers can sometimes claim a tax credit on their United States tax return for taxes paid outside of the county.

On top of filing an income tax return, United States citizens residing abroad are required to submit an FBAR Report if they hold foreign assets in excess of $10,000. Although the deadline for submitting the FBAR Report to the United States Department of Treasury is June 30^th, some of the information contained in the report is required for the tax return due two weeks earlier. Ownership in foreign businesses and holdings of other foreign assets must be itemized on the FBAR Report while Income from these same sources is required for the income tax return.

If you are a United States citizen residing abroad, our tax settlement professionals can help you evaluate and meet your tax filing requirements. The CPAs and Enrolled Agents at Professional Tax Resolution are experts in the area of foreign tax compliance and can help you evaluate your foreign income reporting requirements. Our experienced tax settlement professionals offer a free, no obligation consultation to answer any tax question or to discuss tax resolution optionsfor a tax debt you are unable to pay. For more information about out full range of tax services, call us at 877.889.6527 or visit our website at www.professionaltaxresolution.com.