Tag Archives: Help with Taxes

IRS Tax Code and Money Earned Abroad – Could it Change?

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Money earned abroad by American corporations is free from U.S. taxes until it is returned to the United States. However, once these foreign earnings are repatriated, they are taxed at a rate of 35%. The current tax code allows multinational companies to avoid this tax, but only if they invest in certain domestic assets such as bank deposits, stocks and bonds. If the foreign earnings are reinvested into the companies themselves, they are taxed at the corporate tax rate of 35%. Currently, a group of multinational companies who have joined together to form what is called the Win America Coalition, is lobbying Congress to reduce the tax rate on earnings they bring home from overseas. This group of companies, which consists mainly of the Silicon Valley technology giants together with some pharmaceutical companies, is asking for the tax rate on repatriated foreign earnings to be reduced from 35% to just over 5%. They claim that a reduction in the tax rate would increase hiring and stimulate job growth by allowing companies to invest in themselves. While some members of both major political parties are in favor of such a tax cut, others are against it. The pros and cons are outlined below.

Reasons for favoring a tax cut on repatriated foreign earnings:

• Due to a flawed U.S. tax code, profits of U.S. companies continue to be invested around the world instead of at home.

• Even though companies are allowed to keep funds earned abroad in U.S. banks, they are not able to put the funds to work in the U.S. economy without being subjected to a 35% tax rate.

• Reducing the tax rate for repatriated funds earned abroad would inject billions of dollars into the U.S economy, thus creating jobs.

Reasons for opposing a tax cut on repatriated foreign earnings:

• Domestic companies that do not have overseas operations say it is unfair to give multinational companies a lower tax rate.

• Some analysts say that job growth created by a tax cut would be lower than some estimates predict because foreign earnings are already invested in U.S. stocks and bonds and deposited in U.S. banks.

• Independent tax analysts have said that when a similar tax cut was initiated in 2004, most of the repatriated funds were spent on shareholder dividends, stock buybacks and executive pay rather than on any type of expansion that would have created jobs.

According to recent report by the Senate’s Permanent Subcommittee on Investigations, large multinational companies are already investing nearly $250 billion in United States financial institutions in order to avoid paying the 35% tax rate on repatriated foreign earnings. The question is whether a reduction in the current rate would promote changes in the distribution of these funds that would be beneficial to the economy.

Do you have a tax planning or preparation question?  Are you thinking about your 2011 taxes and want to avoid owing the IRS a tax debt?  Call for a free, no obligation tax consultation with our CPA’s today (877) 889-6527 or email us at info@protaxres.com

Start of 2012 with clear and accurate tax advice – contact us today!

 

Back Taxes and Small Businesses -Tips to Avoid Tax Debt

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Back Tax Issues for Small Businesses

What back tax issues are commonly encountered by small businesses?

Due to the complexity of tax law, many small business owners do not know how to use available deductions to reduce their lax liability and therefore end up with tax balances that are more than the business can afford to pay.

With the current state of the economy, many small businesses have cash flow problems. When this is the case, they may use available cash to fund operations rather than making tax payments.

What types of tax payments are small businesses responsible for?

Small businesses are responsible for paying sales taxes (often to multiple states), payroll taxes and quarterly tax payments.

What are the consequences when small businesses do not make their tax payments on time?

The IRS has the power to impose harsh penalties when small businesses fail to meet their tax deadlines. The reason for the delinquency is usually not taken into consideration.

One of the harshest penalties is imposed when a small business fails to meet its payroll tax deadlines. The penalty is called the Trust Fund recovery Penalty and is equal to 100 percent of the payroll tax balance. This penalty does not take into account the reason for the delinquency and can assign blame to anyone who was, in any way, responsible for the payroll tax debt.

What solutions are available to small businesses with back tax issues?

The best way for a small business to deal with a back tax issue is to face it head on rather than to wait for the liability to increase due to the compounding of interest and penalties.

Many states offer voluntary reporting programs and, while no such program is currently offered by the IRS, they due offer numerous tax debt settlement options.

While small business owners may rationalize that they will clear up their tax debt issues down the road when business is more profitable, this is usually not a wise decision. The IRS is more likely to approve a settlement agreement when business income and profits are low, not to mention that he legal and financial consequences of not addressing a back tax issue can be severe.

Due to the complexity of tax law, especially as it applies to small businesses, the best approach to resolving back tax issues is often to enlist the help of a qualified tax professional.

If you are a small business with unresolved tax debt, our experiences professionals can help you resolve your back tax issues. For more information about our tax debt resolution services, call us by phone at (877) 889-6527 to receive a free, no obligation consultation.

Have IRS Tax Debt? Need a New Passport? The GAO wants to know.

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As of the end of fiscal 2010, the balance of reported unpaid federal taxes was about $330 billion according to the IRS. This is a huge amount and as we have written about in the past, the enforcement of the tax laws and the tax code is on Government Accountability Office’s list of high-risk areas.  The deficit being what it is it may come as no surprise that the GAO was asked to investigate, by cross referencing unpaid federal taxes and passport issuance, the magnitude of known unpaid federal taxes for individuals who were issued passports.  Selecting a past year, the GAO did a study for the fiscal year 2008 to identify examples of passport recipients who had known unpaid federal taxes.

They study discovered that individual states issued passports to about 16 million individuals during fiscal year 2008 and that of these, over 224,000 individuals (over 1 percent) owed more than $5.8 billion in unpaid federal taxes. That is JUST those individuals who got new passports in 2008 – not all passport holders.

Does that come as a surprise? Currently each state is not authorized to restrict the issuance of a passport to an individual because they owe federal taxes. In addition, federal law does not permit the IRS to disclose taxpayer information, including unpaid federal taxes to State officials unless the taxpayer consents. The reason this is at least somewhat surprising is that in contrast, federal law does permit certain other restrictions on the issuance of passports to individuals, such as for those individuals owing child support debts over $2,500.

Really, the problem is likely far greater than 1% of the newly issued passport holding population.  In addition to the obvious population balance of all valid passport holders for the studied year of 2008, the estimated amount of unpaid federal taxes was actually likely understated because it excluded individuals who had not yet filed tax returns or who had underreported income.

Making matters harder, individual States currently cannot compel a passport applicant to provide a Social Security Number (SSN). Because the IRS uses the SSN to identify each taxpayer, without an SSN you cannot match an individual back to their IRS data.

This study had produced such alarming results already and the GAO wanted to know a bit more. They took the 2008 study and dug deeper into the backgrounds of a very small group of just 25 passport recipients. Clearly this is a tiny study and cannot be reflective of the population as a whole. That said, some pretty interesting things were discovered.  When investigating for abuse related to the federal tax system or criminal activity, of these 25 cases, at least 10 passport recipients had been indicted or convicted of federal laws! In addition, the IRS had assessed trust fund recovery penalties on several passport recipients; a penalty which is applied when an individual does not remit payroll taxes to the federal government.  How does someone fall behind on Payroll taxes?  Instead of acting appropriately as the trustee of an individual employee’s withholding and forwarding it onto IRS, they divert the money for other purposes. Using payroll taxes is a big crime; in fact the willful failure to remit payroll taxes is a felony underU.S.law.

In this smaller study of the 2008, of those 25 new passport holders, some had accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, all while failing to pay their federal taxes. In fact, of the 25, at least 16 passport recipients traveled outside the country all while owing federal taxes and another 4 passport recipients actually resided in another country at the time! Worse yet, two individuals used the identities of deceased people to fraudulently obtain passports in the first place and then used the passports to travel toMexico,France, and Africa. Ironically in one case, the unpaid tax debt belonged to a deceased individual and in the other; the debt was actually incurred by the imposter.

If this small study is any indication, there appears to be a big opportunity to crack down on passport issuance for those who owe federal tax debt. Although nothing official has been implemented to date, Congress could pursue policy to link federal tax debt collection and passport issuance by enabling States to screen and prevent individuals who owe federal taxes from receiving passports.  This would require transparency and more communication between the IRS and the individual States, but it seems that the opportunity to collect unpaid tax debt would be greatly improved as a result.

 

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com for more information about our customized tax settlement assistance. The CPAs and tax professionals at Professional Tax Resolution use their extensive knowledge of the tax code to provide taxpayers with the best settlement option available. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to learn more about our services and to receive a free, no obligation consultation.

IRS Tax Tips for the Unemployed – What to Know When Money is Tight

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If you are unemployed you are probably worried about many other things but there are some tax consequences and conversely some tax breaks that result from being unemployed.

Here are some facts that unemployed taxpayers will need to know when filing a 2011 tax return on April 15 2012.

1. Severance packages, Accumulated sick leave, Vacation, and Holiday pay are all taxable income. It is another terrible reality of being terminated. These amounts will have taxes deducted and be declared on your W2 as income.

2. Unemployment benefits are also considered taxable income. At tax time you will have to pay taxes on this income even though it was not deducted at the time the checks were issued to you.

3. You can be proactive and ask the government to withhold 10% of the unemployment payments you receive weekly in order to prepay the resulting tax liability.

To do so, complete IRS Form W-4V and submit it to your state unemployment department. The state unemployment department will provide form 1099-G to the IRS by Jan. 31 to show how much you received in benefits. The IRS will be looking for this number on your tax return.

4. Withdrawals from retirement plans and IRAs are generally taxable. The news is worse if you are under 59 ½ or younger. In that case you may be subject to a 10% early-withdrawal penalty on top of which your state may assess a penalty as well.
Ask your Tax professional, but there are some exceptions to this penalty. For a self help tutorial on the subject check out Publication 575 at www.irs.gov.

5. There is one way to use retirement funds – although only temporarily – without penalty. To do so, roll over your retirement fund or pull money out for 60 days or less and then re-deposit the entire amount into a qualified retirement plan. Using your funds only temporarily like this does allow you to escape the hefty penalties.

6. Loans and gifts from family and friends are not taxable income. This is one bright spot for the many cash strapped taxpayers out there. In addition, Bank loans or credit card cash advances are also not subject to tax.

7. Money received from a credit card company or an insurance carrier to cover your monthly payments while unemployed is not taxable income.

8. Public assistance, welfare and food stamps, are not taxable income either.

9. Having any Debt written off or forgiven may result in that amount being subject to income tax. The unemployed often find themselves with debt being forgiven and an unfortunate tax consequence as a result. While not working, you have no income and likely do not have the ability to repay existing debt. If a creditor writes off a balance you owe or reduces your balance by forgiving some of the debt, you will be liable for income taxes on the amount forgiven. Be on the look out, you will receive a Form 1099 by Jan. 31 indicating the debt forgiven amount that is taxable.

10. If you file bankruptcy none of the forgiven debt is taxable income.

11. If you are insolvent, you may escape a tax liability to the extent of insolvency.

To determine this, add up the value of all of your assets on the eve of the debt forgiveness. Then add up the value of all of your debt. Subtract the debt from the assets. If the result is a negative number, then you are insolvent to that extent.

Here is an example: You have assets of $100,000 and a debt of $120,000 with a resulting insolvency of $20,000. A credit card company forgives a balance of $30,000. In this case you would have to pay taxes on $10,000 which is the difference between your insolvency and the balance forgiven.

Tax Benefits. Now to the Few Potential Positives To Being Unemployed.

1. Your decrease in income will likely throw you into a lower tax bracket and you may enjoy a refund from amounts paid in before your unemployment.

2. If your earned income is low enough, you may qualify for the Earned Income Tax Credit (EITC) as well as the additional Child Tax Credit, which will result in an even bigger refund of the amounts you paid into the system before unemployment.

3. Job search expenses are deductible.

4. If you go back to school, you may qualify for the American Opportunity Credit or an education deduction for college tuition, books, fees, and computer equipment.

5. If you get a new job and the job requires a move; you may be able to deduct moving expenses. For more information, read the self help guide – “IRS Publication 521” to determine if you meet the time and distance requirements. This guide can also help you to determine which expenses are deductible.

6. If you have a tax debt from prior years and are already on an installment plan, you will likely be able to put off repayment because you are unemployed. Call the IRS and let them know your situation. As a temporary status, they can reclassify you as “temporarily uncollectible”. Typically this gives you a year of delayed repayments before they begin collection efforts again. If another year passes and you are still unemployed, the IRS will renew the “uncollectible” status. Of course those hefty penalties and interest will continue to accrue, but you will be temporarily relieved of the burden of the IRS debt.

 

At Professional Tax Resolution we provide all of the services necessary to help you plan your finances or resolve a tax debt issue that already exists. Our professionals will get a comprehensive understanding of your situation, stop any immediate collection actions, and help you handle the pressure you might be feeling.

Call (949) 596-4143 or click “Learn More” for a free consultation with our CPA.

 

IRS Offer in Compromise – A Review of Eligibility Guidelines

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We get a number of calls inquiring about the IRS Offer in Compromise Program. While an IRS Offer in Compromise is a very effective tax settlement option for a very well defined group of taxpayers, it is definitely not the optimum solution for anyone with an unresolved tax debt. The acceptance criteria for an Offer in Compromise are very specific, the application process is lengthy and the rejection rate can be high. Amazingly the IRS can also take up to two years from the date it receives the initial application to accept or reject an Offer in Compromise. With this timeframe in mind, it is often advantageous to enlist professional help when considering this tax settlement option. An experienced tax settlement professional will be able to determine whether the taxpayer meets the strict IRS qualification criteria and, following that determination, will ensure that the Offer in Compromise application is submitted according to published IRS guidelines. Utilizing a qualified CPA or tax professional can drastically reduce the rejection rate because the preliminary work to qualify you as an applicant and to appropriately complete the forms is done for you.

Not sure if you qualify? The primary components necessary to obtain a successful Offer in Compromise tax settlement are outlined below:

  • The taxpayer must meet one of the three eligibility criteria specified by the IRS. Those three criteria are

1) doubt as to whether the taxpayer is liable for the tax debt

2) doubt as to whether the taxpayer has the means to pay the tax debt

3) a determination that settling the tax debt would promote effective tax resolution.

Since the Offer in Compromise allows a taxpayer to settle a tax debt for less than the full amount owed, the IRS only accepts applications that adhere strictly to theses acceptance criteria.

  • The taxpayer’s eligibility must be adequately documented. Sufficient documentation to support one of the three eligibility criteria is required. This documentation may include tax returns and other financial records, disability claims and records of medical treatment and hospitalization, among other things
  • The total amount of the tax debt must be accurate. This means that the taxpayer must be current in submitting tax returns. All previously submitted returns must be checked for accuracy and refiled when necessary.
  • The Offer in Compromise application must have been submitted according to specific IRS guidelines. All of the necessary forms included with the application must be complete and all required fees and supporting documentation must be included.

Once an Offer in Compromise application is submitted, the IRS will begin its review process. During this time additional information and supporting documentation will be requested when necessary. The review process usually takes anywhere from six to twelve months but can take a maximum of two years. If the application is not officially accepted or rejected within two years, the IRS is required to accept the offer.

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com for more information about our customized tax settlement assistance. With over 16 years of experience working with the IRS, our experienced professionals will help you determine which available tax settlement option best meets your specific needs. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to learn more about our services and to receive a free, no obligation consultation