Tag Archives: IRS Help

Gift and Estate Tax Changes Expected to Occur at the End of 2012

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The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act which was signed into law in 2010 increased the amounts of the estate, gift and generation skipping tax exemptions and, at the same time, lowered the tax rates for each of these taxes. However, unless Congress takes some action before the end of the year, the estate tax benefit benefits provided by this law will expire on December 31, 2012. The major provisions of the 2010 Tax Relief Act are outlined below together the changes that will take place on January 1, 2013 if Congress does not take further action.

Gift Tax

  • Current

The gift tax exemption is $13,000 per year for gifts made by any one person to any number of people. There is a lifetime gift tax exemption of $5,120,000 for gifts made above the $13,000 limit.

  • January 1, 2013

The gift tax exemption will remain at $13,000 per year (with a possible increase for inflation) for gifts made by any one person to any number of people. The lifetime gift tax exemption for gifts made above the $13,000 limit is scheduled to revert to $1,000,000.

Generation Skipping Tax

  • Current

The GST exemption is $5,120,000 with a tax rate of 35% on amounts above the exemption limit.

  • January 1, 2013

The GST exemption is scheduled revert to $1,390,000 per year (with a possible increase for inflation) with a tax rate of 55% on amounts above the exemption limit.

Estate Tax

  • Current

The estate tax exemption is $5,120,000 with a tax rate of 35% on amounts above the exemption limit. Portability of unused estate tax exemptions of one spouse to the surviving spouse is allowed.

  • January 1, 2013

The estate tax exemption is scheduled revert to $1,000,000 per year with a tax rate of 55% on amounts above the exemption limit. Portability of unused estate tax exemptions of one spouse to the surviving spouse will no longer be allowed.

With January 1, 2103 fast approaching, taxpayers are anxious to see what, if any, action will be taken by Congress. If Congress does nothing, the exemptions for gift, generation skipping and estate taxes will revert to their 2009 levels and the tax rates for amounts above the designated exemption levels will increase to 55%. On the other hand, if Congress votes to extend the Tax Relief Act, the exemption limit for these taxes will remain at $5,120,00 with a possible inflation adjustment and the tax rate for amounts above the exemption limits will be held at the current 35%. Barring a full repeal of the estate tax, the third alternative would be the passage of some sort of compromise law that would place exemption limits and tax rates somewhere in the middle of the 2009 levels and those set by the Tax Relief Act of 2010.

If you owe back taxes due to a gift or inheritance, we can help you determine whether the assessed amounts are accurate based on past and current estate tax laws. Very often, the process of accurately interpreting the law and making use of tax benefits the law provides can result in a significant reduction in the tax amount owed. Following this analysis, our experienced tax settlement professionals will resolve any existing tax debt in the most effective way available. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

Tax Penalties: Removing the Failure to Pay Penalty

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Have you received an IRS notice of Failure to Pay? Last week, we discussed the IRS penalties and consequences of Failure to Pay, which is when a taxpayer fails to either meet a tax filing deadline, or make a tax payment by its due date. The consequences for Failure to File include 5% per month of the taxes due according to a tax return that the IRS has prepared in your place, with the maximum penalty being 25% of the owed amount. For outstanding taxes, the monthly IRS Failure to Pay Penalty can be 0.25%–1.0% of the amount due, with the average being a 0.5% IRS penalty.  These penalties can accumulate over time and become a large financial burden.

So, how can you remove the IRS Failure to Pay Penalty and reach a tax settlement? The IRS realizes that not every situation is black and white. They understand that a taxpayer’s full compliance is not always possible. Here are a few steps that may be helpful.

Reasonable cause If there is a legitimate reason for your failure to pay, the IRS may opt to remove your penalties. About a third of all IRS penalties are later removed. Reasonable causes include: the death of a family member or close friend, unavoidable absence (including hospitalization, prison, rehab, etc.), destruction of the location where the taxpayer’s records are held (by fire, flood, etc.), inability to pay due to material impairment by civil disturbances (such as divorce), bad or incorrect advice from a tax professional or directly from the IRS, and errors made while acting with “ordinary business care and prudence.” Whatever your reason, be prepared to answer questions about your situation and have the necessary applicable documentation to back it up.

Penalty abatement If you do have a reasonable cause, you may apply for penalty abatement. This is a formal dispute of the penalties and interest from failure to pay. Penalty abatement can also apply when you have an administrative waiver, or if IRS made a mistake. If you have a reasonable explanation for your situation and failure to pay, your penalties and interest could be completely removed and a refund could be claimed. Penalty abatements can be filed through sending a letter to the IRS or completing a Request for Abatement and Refund form.

IRS Fresh Start Program If you were unemployed for 30 consecutive days in 2011, or in 2012 prior to April 17th, you may be eligible for the Fresh Start Program. This IRS initiative gives taxpayers 6 months to pay their taxes without incurring failure to pay penalties, as long as the tax liabilities are paid in full by October 15th, 2012. The Fresh Start Program also applies self-employed individuals with a 25% or more drop in income during 2011. To qualify, the adjusted gross income (AGI) of a single filer must be less than $100,000, and joint filers less than $200,000. There is an application form for the Fresh Start Program on the IRS website.

If you have received an IRS Failure to Pay notice, our tax specialists can help you determine if the assessed tax penalty is accurate. Then, they can work with you on a payment plan, or determine if there was a reasonable cause that could apply to penalty abatement. For more information about our tax debt resolution services, visit us today at professionaltaxresolution.com. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation. 

Tax Refunds May Be Delayed This Year

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The IRS website “Where’s My Refund” for checking refunds is up again after being down for the better part of a week. The website was back in action about midday last Wednesday after being out of service since Feb. 15.

Taxpayers who had received IRS acknowledgment that their tax returns were being processed were startled when they visited the website during the week and got a message that the IRS had no information regarding their return.

The IRS said it was an error message and that if the IRS said the filing had been received, it was being processed.

With the “Where’s My Refund” site back up, you can now check the website 72 hours after your e-filed return has been accepted to see the status of your refund. Those who mail in their returns can check four weeks after they send in their signed return.

The IRS did not say exactly what the problem was, but issued this statement:

“As with the start of any tax season, there were system validations that occurred requiring some fine-tuning of our systems. As part of this, in January, the IRS announced that some taxpayer refunds could be issued approximately one week later than initial projections they may have received, but these refunds were still in line with historical refund delivery times.”

The IRS said in most cases, it issues refunds 10 to 21 days after a return is received.

If you have tax debt issues and need help with tax settlement, our experienced tax professionals can provide you with the tax help you need. Our tax specialists can help you get your maximum refund and help you with back taxes owed. For more information about our tax debt resolution services, visit us today at professionaltaxresolution.com. Contact us by phone at (949)596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.

 

Avoid IRS Penalties – Settle your IRS Tax Debt – Tax Settlement Tips

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If you have been disregarding a notice from the IRS, tax filing deadlines, or ignoring tax liabilities, it is probably time to think about filing those back tax returns and paying outstanding tax balances. Even though the Obama Administration’s 2012 Budget request for increased funding for the Internal Revenues Service was not approved, the ability of the IRS to enforce tax compliance has improved over time. System modernization and software improvements have made it harder for a taxpayer to stay under the IRS radar by making it easier for this powerful collection agency to track down individuals who fail to file tax returns or owe back taxes.

When tax amounts are owed over an extended period of time, the financial burden can become overwhelming due to the continued accumulation of penalties and interest. It is not unusual for these additional amounts assessed by the IRS to total as much as 50% of the original tax amount owed.  The financial consequences of failing to file a tax return or owing back taxes are outlined below:

  • Failure to File Penalty The Failure to File Penalty is calculated on the tax balance due as shown on the tax return. This penalty is 5% of the tax amount due for each month the return is late, with a maximum penalty of 25%. Although it is seldom invoked, a taxpayer who fails to meet a filing deadline can also be charged with a misdemeanor, which carries a maximum fine of $25,000 and up to a one-year prison term.
  • Failure to Pay Penalty The Failure to Pay Penalty is calculated on the tax balance due as shown on the tax return. These penalty charges are assessed at the rate of 0.5% for each month that the tax balance is not paid in full, beginning from the original April 15th filing deadline. The Failure to Pay Penalty has no limit on the maximum percentage amount that can be assessed.
  • Interest Interest is charged on the balance of any tax liability for each day the back tax balance is not paid in full. The interest rate, which is variable and set quarterly, is currently 4%.

With the downturn of the economy, even more taxpayers have missed filing deadlines or have found themselves with outstanding tax balances that they are unable to pay. When these tax debts or unfiled tax returns are left unresolved, the IRS will initiate collection activities to enforce compliance and collect the tax amounts owed. Unpaid tax debt or unfiled tax returns will result in collection efforts by the IRS. These collection activities begin with the assessment of interest and penalties and are followed by more aggressive actions including the filing of tax liens or tax levies and the initiation of wage garnishments. On a positive note, there are many tax settlement options available to taxpayers who are unable to pay the tax balances they owe. The important thing is to begin the resolution process immediately before penalties and interest accumulate further or the more severe consequences of owing the tax debt are imposed.

A licensed tax professional will be familiar with all of the tax settlement alternatives available and can be invaluable asset to a taxpayer who is the subject of collection attempts by the IRS. If you have failed to meet tax filing deadlines or have an unresolved tax liability, our experienced tax professionals can help you become tax compliant. For more information about our tax settlement services, visit www.professionaltaxresolution.com. The members of our staff have a thorough understanding of tax law together with the experience to know which tax settlement option will most effectively resolve your specific back tax issues. Contact us today at (877) 889-6527 or info@protaxres.com to receive a free, no obligation consultation.

 

Mortgage Debt Forgiveness Act Set to Expire in 2012

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Under ordinary United States tax law, the forgiveness of mortgage debt results in a tax liability for the taxpayer whose debt is either entirely or partially forgiven. When a lender forecloses or agrees to accept a short sale or a loan refinance agreement to a lower loan amount, the amount of mortgage debt forgiven is considered to be income for the borrower and is therefore subject to taxation by the IRS. However, since the passage of the Mortgage Forgiveness Act in 2007, homeowners have been protected from this potential burden to their tax settlement. The Mortgage Debt Forgiveness Act excludes forgiven mortgage debt from becoming a tax liability in the following specific instances:

• Short Sales There is no tax on the difference between the loan balance and the selling price.

• Foreclosures There is no tax on the canceled loan amount.

• Refinancing to a Lower Loan Balance There is no tax on the difference between the original and the new loan amounts.

Although the Mortgage Debt Forgiveness Act protects taxpayers from most tax liabilities incurred from the forgiveness of mortgage debt, it includes the following exclusions and limitations:

• It does not forgive mortgage debt incurred through a home equity loan.
• It applies only to the sale, refinance, or foreclosure of a primary residence, not a rental property or a second home.
• It caps the amount of debt forgiveness it will exclude from taxation at $2 million for a married couple filing jointly or $1 million for a single person or a married individual filing separately.

The Mortgage Debt Forgiveness Act is set to expire at the end of 2012 unless Congress votes to extend it. This means that any amount of mortgage debt that is forgiven after January 1, 2013 will be considered taxable income. With this deadline in mind, a taxpayer who is considering applying for any type of mortgage debt relief should set the process in motion as soon as possible. All lenders take time to process debt forgiveness decisions and the time remaining to take advantage of the tax relief provisions of the Mortgage Debt Forgiveness Act is running out.

There are many factors to consider before making a decision to seek relief from mortgage debt. Foreclosures, short sales, and certain loan restructuring agreements have a negative impact on a taxpayer’s credit score. The lower credit score will then affect the taxpayer’s ability to purchase another home at any time in the near future. In addition, any income realized from one of the mortgage debt relief alternatives could push a taxpayer into a higher tax bracket which carries with it other tax implications. Probably the best approach to take when considering any type of mortgage debt forgiveness is to enlist the services of a qualified tax professional. Such an individual will be able to accurately weigh the effects of all of the factors affected by the decision and make a recommendation that will best fit with the taxpayer’s specific set of circumstances. The tax relief provision provided by the Mortgage Debt Forgiveness Act that is set to expire at the end of 2012 is certainly not the only point to consider.

If you have experienced a foreclosure, sold your home in a short sale, or refinanced your mortgage for less than the balance on the original loan, our experienced tax professionals can ensure that you receive the tax relief benefits you deserve. If you are considering one of these mortgage debt relief alternatives, our professionals can advise you of the potential advantages and disadvantages. Visit www.professionaltaxresolution.com for more information about debt forgiveness and other tax settlement services. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.