Tag Archives: tax credit

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

Posted on by

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.

 

For Those With Tax Debt, The Economy Could Cause Even More Problems.

Posted on by

The struggling economy has caused more taxpayers than ever to find themselves with and outstanding tax debt that they simply cannot pay. When accepting tax settlements one of the requirements of the IRS is typically that the taxpayers file and pay their taxes on time in the future. Most taxpayers get behind initially due to a lost job, an illness or some other unforeseen event. It can be very difficult for taxpayers struggling financially to stay current on their current taxes while settling those owed for prior years. Any increase in taxes now or in the future would certainly make a difficult problem much worse for taxpayers already struggling with a tax debt.

As most people know the struggling US economy will force legislators to make difficult decisions in the upcoming years. One of the most common points of discussion is the raising of taxes. (https://inboundrem.com/) Lawmakers continue to discuss on how to handle the nation’s debt and do something significant rather than simply patch the problem. It seems likely that all potential solutions will be brought to the table during the course of the negotiations. One issue, addressed by President Obama in his 2011 and 2012 budget proposals, is the current mortgage interest deduction which is one of the nations largest tax expenditures. According to many estimates, the mortgage interest deduction cost somewhere between $80 and $103 billion in 2010, and its value over the 10-year budget window is expected to exceed $1 trillion

Proponents of the mortgage interest deduction argue that it makes affordable to taxpayers who would otherwise not be able to own a home and encourages home ownership. Critics argue that the deduction tends to benefit higher income taxpayers who would have purchased a home without the deduction and that deduction artificially drives up home prices. However, this same argument is cited by its proponents, who observe that eliminating the deduction could further impact home prices in an already depressed market.

Any significant increase in taxes either through an increase in the tax rates or the disallowance of current deductions would make it more difficult for those already struggling to pay their income taxes. With the uncertainly regarding the US tax structure and the economy in general it is more important than ever for taxpayers with significant tax debt to explore their options to actually resolve the tax debt. With taxpayers and with the US providing temporary solution will only result in a more difficult problem to solve in the future.

Contact Us our professionals here for more for more information about customized tax relief assistance. With over 16 years of experience, we have the can help you select the tax relief option that will best meet the specific needs of your tax debt situation. Contact us today at (877-889-6527 or info@protaxres.com to receive a free, no obligation consultation.

Sending your kids to a summer day camp? Some of the expenses may qualify for the Child and Dependent Care Credit.

Posted on by

When trying to determine tax settlement strategies, the best is to not incur the balance to begin with! Here is one tip to help you lower your tax liability.

If you paid for someone to provide care for your child while you, your spouse, or both were either working or looking for work, you may qualify for the child and dependent care credit. Certain expenses and providers qualified for this credit, and summer day camps are one of those qualified expenses.

Depending on the parents’ income, the credit can be up to 35 percent of the qualifying expenses. For one qualifying child or dependent, parents may use up to $3,000 of the un-reimbursed expenses paid in one year, and up to $6,000 for two or more qualifying individuals.

If you have a tax settlement issue and believe this, or other tax credits were overlooked on your past tax returns, the licensed tax experts at Professional Tax Resolution may be able to help lower or even eliminate your tax debt liability. There are time limitations for your tax settlements, so don’t delay and call us for a free quote.

Complicated Tax Settlements and Returns Are Our Specialty. We Found This Client $75,000!

Posted on by

There are many types of accounting, tax and tax settlement service providers. CPAs and accounting firms typically provide tax preparation services to businesses and individuals but rarely devote much effort to actual tax settlements. On the other hand, tax resolution and tax settlement firms focus mostly on settling outstanding tax debt without ensuring that all available tax code benefits have been used on the original tax filings. Professional Tax Resolution combines the expertise of tax settlement professionals and experienced, licensed tax preparers. The first step in any tax settlement case should be to confirm that the reported tax liability is correct and that all available tax code benefits have been utilized. Following that, a tax debt resolution plan can be mapped out.

Jeff F. came to us shortly before the April 15th filing deadline. A successful chiropractor, Jeff had made large tax payments for himself and his corporation for many years. However, he owed a large tax liability for the previous year and had failed to make estimated tax payments for the current year. We told Jeff that we would be happy to prepare his individual and corporate tax returns and suggest a tax settlement option for the balances owed. Although his original tax filings had been prepared by two well established CPA firms, we suggested that we would review them prior to recommending a tax settlement plan just to confirm that the balances owed were correct and that no tax code benefits had been missed.

After reviewing the most recent returns, it appeared that, as expected, the returns had been filed properly. However, one important tax benefit had been overlooked. Jeff’s business is located within an Enterprise Zone that offers specific state tax benefits for companies located within the zone. One of the benefits is a state hiring credit made available to employers meeting certain specific criteria. Companies who qualify but have failed to claim this credit are permitted to amend returns and claim missed credits providing the returns are filed within the statutory amendment period. The vouchering process to obtain these credits is fairly involved and takes several months to complete but we determined that the potential tax benefits were worth the time and expense.

After several months of reviewing employee qualifications we were able to obtain qualifying vouchers and identify over $75,000 in unclaimed state tax credits for prior year’s tax returns. The best news was that the returns fell within the statutory amendment period so the refunds could still be claimed. In addition, the credits would apply to subsequent years so the client would be able to claim as much as $15,000 in tax credits for each year going forward. While these refunds only applied to state tax balances, the client was able to use the past refunds to pay outstanding IRS balances.

Complicated tax settlements are what we do at Professional Tax Resolution. This is yet another example of how a qualified tax settlement firm can provide real solutions to taxpayers faced with a significant amount of IRS tax debt.

2010 Electric Car Credit and Other Tax Incentives

Posted on by

There are a variety of reasons why taxpayers might find themselves with a significant amount of tax debt. Many individuals have outstanding tax liabilities because they have failed to file income tax returns or report portions of their income. In other situations, taxpayers have filed their returns but have done so incorrectly or relied upon the services of unqualified tax preparers who have made filing errors. At Professional Tax Resolution, our services go beyond those of a traditional tax settlement firm. Our goal is to stop collection activity, resolve any existing tax debt issues, and then work with the client to ensure that a problem situation does not repeat itself.

The government provides various types of tax credits to stimulate demand for certain products and industries. Most recently the IRS and various states have encouraged home sales and the purchase of energy efficient vehicles and appliances through the use of tax credits. While these incentives can provide taxpayers with substantial tax advantages, they can have devastating effects if they are filed incorrectly. It is not uncommon for our firm to meet with a new client who has been in tax compliance in the past but is now faced with a tax debt that is due to the incorrect filing of a tax return or an error in the reporting of a tax credit. If a tax credit is filed incorrectly, the IRS typically will not identify the error and disallow the credit until a year, or possibly two, after the filing of the original tax return. By this time, various types of filing, payment and accuracy related penalties and interest have often been applied to the outstanding tax debt. These assessments can add up to amounts that taxpayers simply are unable to pay.

Last year the IRS published numerous news articles about the fraud and improper filing of the $8,000 First-Time Homebuyer Credit. This year it is publishing similar articles about the misunderstanding and fraud related to the $7,500 electric drive motor vehicle credit. While taxpayers should certainly take advantage of these potentially lucrative tax incentives, they should also take care to make sure that they are in fact eligible for them and that they are properly filed.

Automobile companies are just beginning to mass market electric cars in response to increased consumer demand. This is at least partially a response to the lucrative tax incentives being offered by the Federal Government. President Obama is pushing to have a million electric cars on the road by 2015 and tax incentives are a large part of the strategy designed to make that number a reality. At present a $7,500 tax credit is available to any consumer purchasing an electric drive motor vehicle and additional credits are being offered to anyone who converts an existing gasoline powered automobile to plug-in.

Although the tax breaks may be serving their purpose in increasing demand for electric vehicles, a Treasury Department review revealed that thousands of taxpayers have claimed the credits for vehicles that don’t qualify. In fact, estimates indicate that over 20% of approximately $160 million in electric car tax credits claimed for the first half of 2010 were claimed in error. In response to the Treasury Department’s findings, the Inspector General has made numerous recommendations for recovering the wrongfully-claimed credits and for improving the reporting methods so as to avoid false claims in the future. The IRS has concurred, saying that it has taken “aggressive steps” to safeguard against improper payments as well as to “recapture the credits people erroneously claimed.”

At Professional Tax Resolution, we have the knowledge and experience to ensure that all of our clients’ tax filings are submitted accurately and according to established IRS guidelines. If a tax debt situation already exists, our experienced CPA’s will take the time to thoroughly analyze it in order to bring about resolution using the best tax settlement option available. The bottom line is not to try to handle a complex tax settlement case alone.

Visit www.professionaltaxresolution.com for more information about tax settlement options or contact us today at (949)-596-4143 to receive a free, no obligation consultation.