IRS Collections

I Didn’t Pay my Tax Balance by July 15. Now What?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

If you missed the tax deadline this year and aren’t sure what to do next, don’t worry.  There’s still time for you to file your tax return and avoid having the IRS come after you for a failure to file or for having any remaining balance owed after filing your tax return. 

Here are some after-tax-day tips you should follow:

  1. File ASAP to avoid additional interest and penalties. For those who filed their taxes before the tax deadline and received a refund, they will not have to deal with the IRS charging additional fees against them. If you have filed after the deadline, the IRS will place penalties and interest against you until the tax return has been filed. Taxpayers can request an extension up until the October deadline, but  it is important to keep in mind that interest will still accrue even if an extension is filed.

A 5% failure to file a penalty is applied to those who fail to file or file a return late. If a return is filed more than 60 days late, the minimum penalty is either $435 or100% of the unpaid tax, whichever is less. The basic failure-to-pay penalty rate is generally 0.5% of unpaid tax for each month or part of a month.

  • File to get a tax refund. The only way to receive your tax refund is to file your taxes. There typically is no penalty for filing after the tax deadline if a refund is due. The IRS strongly recommends taxpayers electronically file their taxes since there will be delays this year for those who file their paper return. 
  • File your taxes electronically. Taxpayers who owe a tax balance will be able to pay off their liability through the IRS’s website by debit or credit card. If you are unable to pay off your tax balance in full, the IRS has an option to go on a payment plan. With Direct Pay and Electronic Federal Tax Payment Systems, it can make it easier and much more efficient for taxpayers to file their taxes and pay off any balances they may owe.

If you need tax help, contact us for a free consultation.

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IRS Increasing Focus on Taxpayers Who Have Not Filed Tax Return

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

It is expected that the IRS will visit more taxpayers who have yet to file their past tax years in an effort to increase tax compliance and enforce the law. The IRS is also looking into tax data, researching new compliance methods, and including increasing in-person visits to taxpayers who are in collections or out of compliance.

The IRS’s main goal is to bring delinquent taxpayers into compliance by filing all unfiled past tax years as well as assisting with any pending payment obligations taxpayers may still have with the IRS. The IRS wants to further promote compliance by also using the following systems:

  1. Increase Identification and cases for individuals and business non-filers. The IRS will look into assigning new cases to IRS employees to ensure those assist those who have yet to file their past tax years.
  • Automated Substitute for Return program (ASFR). Individual taxpayers who have multiple unfiled years as well as a tax liability possibly tied to these years will receive notices alerting them to tax years that need to be filed as well as any potential tax liability they may owe.
  • Automated 6020(b) process. Promotes employment tax filing by identifying business taxpayers with employment requirements who have yet to have filed for a specific tax period. The IRS will be making greater efforts to ensure that businesses comply with both tax filing and payment requirements.
  • Delinquent Return Refund Hold Program (DRRH).  A taxpayer’s refund will be held if the IRS finds that the individual has at least one unfiled tax return within the last five years.

Many non-filers are owed tax refunds but are unable to receive them because of past tax years that still need to be filed. The IRS strongly recommends filing any unfiled years to ensure they receive any future tax refunds. 

For taxpayers who haven’t filed in previous years, the IRS has current and prior year tax forms and instructions available on the IRS.gov Forms and Publications page or by calling toll-free 800-TAX-FORM (800-829-3676).

If you need tax help, contact us for a free consultation.

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What are the Common IRS Audit Triggers?

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.Two words that strike anxiety into even the most honest taxpayer? Tax audit. In reality, the odds of being audited by the IRS are slim. While the IRS is diligent about collecting the revenues which it is owed, the old days of the IRS driving honest taxpayers and their families to financial ruin are largely a thing of the past.

Related article: 5 Steps to Surviving an IRS Audit

Nonetheless, many taxpayers wish to eliminate even the remote chance that they will face an IRS audit. While there is no absolute guarantee that you will avoid an audit, steering clear of these dozen common IRS audit triggers will place the odds firmly in your favor.

Common IRS Triggers

Too Much Income

Just like old-time bank robbers, the IRS is more likely to target high-income taxpayers because they are more likely to have financial resources that can be collected. But this doesn’t mean that you should make less money to avoid an IRS audit. It does mean that if you are a high net worth individual, you should be extra diligent about record-keeping to avoid triggering an audit

Too Little Income

Low-wage workers are not necessarily targets for tax audits by the IRS. But taxpayers who report incomes far below what others in their profession earn might raise flags and audit triggers. For instance, physicians who report less than high five-figure incomes may raise suspicion, unless they work in areas of extreme poverty.

Unreported Income

This is a no-brainer. The IRS receives notification of income for wage earners from Form W-2. Non-wage income is reported on form 1099. It really isn’t very smart to underreport your income. Of course, if you have legitimate deductions and tax credits that reduce your adjusted gross income, that’s fine. Just be prepared to verify the tax breaks that you claim in case the IRS inquires.

Rounded Numbers

Did you really make exactly $50,000 last year? If so, be ready to prove it to the IRS. Otherwise, don’t round or average numbers, because doing so sends a signal to the IRS that the rest of your return might be less than accurate. Discrepancies between State and Federal Returns Get this one wrong and you may wind up with double trouble: inquiries from Uncle Sam and from your state. Plain and simple, the income that you report to the IRS must match the income that you report to the state. Of course, deductions can and often do differ between the federal government and the state, so differences there are fine.

Unexplained Variations in Income

Your income jumps after you graduate from college and get a great job. Or you lose your job and spend a year searching for a new job. Those kinds of variations don’t generally raise red flags with the IRS. Likewise, self-employed workers need not lie awake nights worrying that their fluctuating income might trigger an audit. But regular wage workers who stay on the job with a single employer tend to have fairly steady wages. Reporting otherwise without supporting documentation may well trigger an audit. Related article: 10 Tax Preparation Tips For The Self Employed

Unusually Large Losses

If your house burned down last year, claim the full amount of your losses. Likewise, if your retirement fund was severely affected by a dip in the stock market or by other factors, go ahead and report the decline. But have documentation ready to back up your claim. Don’t claim you have unusually large losses if you don’t have paperwork to prove it.

Larger-than-Average Deductions

Charitable deductions that are out of proportion with your income are a red flag for the IRS. Likewise, self-employed workers who earn much more from their clients or customers than they report in income on Schedule C should brace themselves. If you really are giving away a large proportion of your net worth, keep meticulous records of your gifts and their net worth. Entrepreneurs who record large capital investments in a single year should maintain invoices and other documentation to explain where so much of their income went.

Home Office Deductions

If you’ve been working from home during the COVID-19 pandemic, then you may qualify for a home office deduction. In the 2013 tax year, the IRS instituted a much simpler means of claiming the home office deduction. In order to qualify for this deduction, a taxpayer must have a dedicated area in their home that is exclusively used for conducting business on a regular basis. The office in a home must serve as the taxpayer’s principal place of business and must not overlap with any other outside activities. (IRS.gov)

Sloppy or Incomplete Returns

The IRS makes it really easy to e-file your income tax returns, and for the majority of taxpayers, e-filing is free. You should take advantage of this convenience. E-filing features double-checking capabilities that minimize common mistakes. Placing entries on the wrong line or skipping important entries altogether is rare when e-filed. You also receive a timely alert when the IRS accepts your return and you receive any refunds that you are due in days or weeks, rather than months.

Adoption Tax Credit

The IRS provides a generous credit for adoption. For 2019, the credit is up to $14,080 per child, for up to 3 children. Qualified adoption expenses can be placed on a tax return if they are a reasonable and necessary adoption fees, court costs and attorney fees, traveling expenses and other expenses that are directly related to and for the principal purpose of the legal adoption of an eligible child.

Straight Up Tax Scams

You should not refrain from claiming any of the tax credits or deductions listed above out of fear of being audited. There is no reason not to claim every tax break to which you are legitimately entitled. But frivolous claims such as paying income tax is voluntary or that federal income taxes are unconstitutional are a fast track to an IRS audit. Likewise, unscrupulous tax preparers that jack up your refund with questionable tax credits and deductions should raise major red flags for you, not to mention the IRS.

Need some tax relief assistance? Optima Tax Relief offers a comprehensive range of services. Schedule a consultation with one of our tax professionals today to receive expert advice.

Can Retirement Contributions Impact your Tax Bill?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation. 

Retirement plans were created in order to provide employees with additional savings to put aside \ for retirement. Whether you’re choosing between a tax-deferred 401(k) or a Roth 401(k), both plans can help you build financial security.

Here are some of the tax benefits and implications you could face with a 401(k):

Tax-deferred 401(k)s reduce the total amount of taxable income. A tax deferred 401(k) allows you to save taxes on the earning of your contributions. This does not mean that you are completely exempt from paying taxes. When you withdraw your earnings, you should expect to pay taxes on the amount you took out. 

When you retire, your income will inevitably decrease, meaning that you will be in a lower tax bracket compared to when you were employed. The money that you take from your 401(k) will be taxed at a lower rate. 

  • Withdrawing early from your 401(k) can lead to a 10% early withdrawal penalty.
  • The IRS allows taxpayers to withdraw without penalty at age 59 ½.

Roth 401(k)s lower post retirement taxes. Earnings for a Roth aren’t taxable unless:

  • You’re 59 ½.
  • You’ve had an account for five years.

Contributions to a Roth 401(k) don’t affect your taxable income that is deducted from your paycheck. The funds are removed after taxes, not before, meaning you are paying taxes as you contribute to your retirement fund. This means that when withdrawing the funds, you may not need to pay taxes. 

Tax benefits are typically based on the total amount of income that is earned and the filing status you use on your taxes. Contributions made to a qualified 401(k) could reduce your tax bill through the Saver’s Credit. This credit can reduce your taxable income based on the percentage you put into your 401(k).

If you need tax help, contact us for a free consultation.

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Do You Need a Tax Relief Lawyer?

The IRS is always prepared, shouldn’t you be as well? Do you need a tax relief lawyer?

Yes, absolutely.

This is a blog for a tax relief company with a small army of tax lawyers, so that’s what we’re paid to say, right? Well, yes, but it doesn’t make it any less true.

Benefits of Using a Tax Relief Lawyer: True Stories

A tax relief lawyer is a wise decision. In January, 2014, Forbes reported that Beanie Beans founder Ty Werner was convicted of evading $5.5 million dollars in taxes owed on the $27 million in interest accrued from millions of dollars stashed away in a Swiss bank account. The sentence? Two years on probation and some hefty fines, which were small change for a billionaire like Werner.

Unrelated, and a couple of months earlier, Daniel Thody, a defense contractor was found guilty to five counts of tax evasion for failing to report $15,000 and $50,000 in taxes from $1.8 million earned as a contractor for the Department of Defense. He faces up to 25 years in prison, 5 years for each count.

Which one do you think hired a tax relief lawyer and which one thought representing himself would be the smarter option? The old adage that he who represents himself has a fool for a client may be a cliché, but that doesn’t make it any less true either.

We’ve already shared the 10 benefits of working with a tax relief firm, but here are a few good reasons you should lawyer up when dealing with the IRS.

What Can a Tax Attorney Do For You?

A tax attorney will ensure that you are treated better. It’s unfair, even illegal, but it’s also human nature. IRS agents are flesh and blood and if they can get away with bullying someone into their interpretation of the law, they probably will. A tax lawyer can ensure the IRS is playing by the rules and treating you fairly. IRS investigators are much more careful about asking inappropriate questions or wasting your time with unnecessary requirements if they know they are dealing with a tax attorney.

That was the finding of an investigation into nine groups in Ohio and Kentucky that sought nonprofit status. Organizations that didn’t have legal representation were more likely to have their applications stalled and receive inappropriate or unnecessary questions from the IRS.

You don’t have to worry about an IRS agent getting upset with you for hiring a tax relief lawyer either. The good ones prefer dealing with tax professionals because they don’t have to waste their time and patience explaining to you the ABCs of a tax audit or the basic IRS guidelines for a criminal investigation. In fact, hiring an experienced tax relief lawyer is generally seen as a sign of good faith to resolve your tax issues.

A few bad eggs may resent you hiring a lawyer and try to dissuade from doing so, but that’s when you really need a lawyer in your corner. The IRS’s own Declaration of Taxpayer Rights clearly states that “If you are in an interview and ask to consult such a person [a lawyer, agent or accountant], then we must stop and reschedule the interview in most cases.” Be suspicious if an IRS agent prefers not to deal with a tax professional.

Can the IRS See My Foreign Bank Account?

The IRS is a behemoth of an agency, one of the most powerful organizations on the planet. From 2008 through to 2014, over 50 bankers from Switzerland, India, Israel and other countries have been indicted for helping rich Americans squirrel billions of dollars into offshore accounts.

In 2013, the IRS also cracked the code of silence of Swiss financial institutions and got UBS, the largest Swiss Bank, to divulge confidential information on American tax evaders, and pay a $780 million penalty.

Even the IRS Thinks You Need a Tax Lawyer

The Taxpayer Advocate Service is an independent organization within the IRS which has the job of ensuring that you are treated fairly and helping you resolve problems with the IRS. Although it’s unlikely a Taxpayer Advocate Service lawyer will protect your interests quite as aggressively as a regular tax attorney, they are better than nothing, if you can’t afford to pay one.

If money is an issue, there is another option: Low Income Taxpayer Clinics. Although these clinics are partially funded by the IRS, they are completely independent and are operated by nonprofit organizations and academic institutions.

Only a Tax Attorney Can Represent You in a Criminal Investigation

Certified Public Accountants are great. When it comes to tax planning, business budgeting and asset management, a CPA is – all things being equal – more useful than a tax attorney is. But when you have a dispute with the IRS, especially if you’re accused of tax fraud or tax evasion, a tax relief lawyer is the only intelligent choice. Tax attorneys are the only ones who can represent you in a court of law and provide you the legal advice and analysis you need.

If that is not reason enough, I have two and a half words for you: attorney-client privilege. Unlike CPAs and accountants, attorneys cannot be subpoenaed to testify against a client in a criminal procedure.

Is it Worth it to Hire a Tax Attorney?

Does this mean you need a tax lawyer every time you get a letter from the IRS? No, of course not. You can probably deal with small mistakes and omissions by yourself or by giving your tax preparer a quick call. However, if there is any chance your case could go sour, you need to call a qualified and experienced tax attorney, and pronto. A good rule of thumb is that if you’re asking yourself whether it’s serious enough to merit calling a lawyer, it probably is.

A quick consultation call with a tax lawyer can save you thousands of dollars in unnecessary legal fees you could have avoided by not procrastinating. Tax lawyers know how IRS attorney think, many tax attorneys worked as IRS attorneys before hanging their own shingle. So, they know what to say, what not to say, and what buttons to push when negotiating your case.

Hiring a lawyer sends the IRS a clear and powerful message. You’re taking the investigation seriously; you’re not going to let IRS agents push you around; and you want to work with the IRS to avoid criminal charges.

The bottom line is that the IRS is scary enough when you have a first-rate lawyer at your side. So hire one already. Need to hire a tax relief lawyer? Our tax professionals at Optima Tax Relief are here to help.

You Received an IRS Notice, Now What?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

  • The IRS will send a notice regarding the debt as well as the penalties and interest that have also accrued in addition to your balance.
  • Failing to provide all relevant information on your tax return could result in you receiving a certified letter from the IRS notifying you that information was missing.  

For those that have already filed their taxes, they may think that tax season no longer affects them but that may not necessarily be true. Some taxpayers may receive a certified letter in the mail from the IRS after filing their tax return notifying them of a balance due or that some information was missing on their tax return. If you’ve received a notice from the IRS, don’t panic, there are options available to you that the IRS offers.

You owe a tax balance.

If you’ve already filed your taxes and owed a tax balance that you have yet to pay off, the IRS will send a notice regarding the debt as well as the penalties and interest that have accrued in addition to your balance. For those taxpayers who are unable to pay their tax liability in full, the IRS offers installment payments that can be made over a period of time in order to satisfy your debt. The IRS will typically present you with a payment plan based on the income that was provided on your tax return. If your income has changed or you are unable to afford the payment plan that was presented to you, it is recommended that you consult with a tax professional to see what additional options you may have. 

Information is missing on your tax return. 

Failing to provide all relevant information on your tax return could result in you receiving a certified letter from the IRS notifying you that information was missing and they need further assistance from you in order to process your return. Typically this letter is sent to taxpayers who have failed to provide all forms of income on their return and will need to submit additional proof to avoid the IRS looking further into the situation. 

Identity theft has caused your tax return to be rejected.

The IRS will notify a taxpayer if they believe that there may be fraudulent activity occurring on their tax return. The IRS will send a letter to you inquiring about a suspicious tax return that you may have not filed. The IRS will request that you do not e-file your return because of the duplicate social security number that was used. Act quickly should you receive this letter from the IRS to avoid further fraudulent activity with your personal information. 

If you need tax help, contact us for a free consultation.

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What does it mean to get audited?

Back in the day, the word “audit” conjured up widespread fear and loathing. With an astonishing 5.6 percent of all Americans receiving that dreaded audit notice from the Internal Revenue Service in 1963, nearly everyone knew someone who had been subjected to a tax audit. The number of IRS audits has declined sharply since then, with a 23 percent decline in the past twenty years. Nonetheless, the IRS has not completely pulled the plug on audits, although budget cuts has precipitated a shift from all-encompassing in-person audits in favor of less cumbersome, less costly audits that focus on specific tax issues.

Five Reasons for an IRS Audit

So, why would a person or business get audited? Here are some of the reasons you may be audited by the IRS.

  1. Failing to report income
  2. Claiming too much in charitable donations
  3. Claiming too many business expenses
  4. Claiming a loss for a “hobby” activity
  5. Making errors on your return

Tax Return Errors

The vast majority of audits are related to items on tax returns that trigger red flags, such as math errors, inconsistencies between W-2 and 1099 forms.

Unusual Increases or Decreases in Income

Another common red flag is a return that shows a reported income or income far out of line with earnings from previous years.

Associated Transactions

You may also be audited if your tax return reflects transactions with another taxpayer who is being audited.

Above Average Withholding

Automatic red flags such as above average withholding for your income level may also trigger an audit.

Random Audits

A certain number of audits are the result of plain bad luck – returns chosen at random.

How Do You Know If the IRS Is Auditing You? The letter informing you that you are being audited should include a notice number in the right-hand corner. This notice number will indicate the reason for the audit. You should use this notice as a guide to determine which records you should gather. Scams are unfortunately common, so it’s important to understand the process. Learn more about the audit notification process in our blog: How to Know If The IRS Is Auditing You.

The Types of Audits

The audit notification letter you receive should also indicate what type of IRS audit you have been selected for. Depending on the type of audit you are facing, your tax matters could be settled in a matter of days or linger for months. For more involved audits, obtaining the services of a tax professional is highly advisable. Consider the following types of audits to better understand what it means to get audited.

Correspondence Audit

A correspondence audit is conducted by mail. Correspondence audits usually involve tax matters that are relatively easy to resolve. In most instances the IRS is seeking copies of checks, receipts and other documentation to support deductions or credits that you have claimed, or to clarify other items on your tax return.

Office Audit

An office audit is conducted in person at your local IRS office. You should be prepared to report to the office with copies of the requested documentation. You may also have a legal representative or your tax preparer present during the audit.

Field Audit

Like an office audit, a field audit is also conducted in person. Unlike an office audit, a field audit is conducted in your place of business. You should be prepared to present copies of your documentation at the audit, and your legal representative or tax professional should also be present. You are not obliged to allow IRS personnel into your home unless the agency has obtained a court order. If you claim the home office deduction, agents may request to enter your home; if you refuse the request, your deduction will almost certainly be disallowed.

Taxpayer Compliance Measurement Program Audit

The IRS uses Taxpayer Compliance Measurement Program (TCMP) audits to update the data it uses to write it computer scoring program. This is the most extensive type of audit, which examines every aspect of your tax return. If you receive notice of a TCMP audit, you should be prepared to present exhaustive documentation, including birth and marriage certificates.

Can You Go to Jail for an IRS Audit?

While an audit may require significant effort on your part to gather the documentation required, it should not inspire panic. The unofficial threshold set by the IRS for tax fraud is at least $70,000 in unlawfully uncollected taxes and at least three years of fraudulent conduct. Therefore, while the odds are stacked against you in terms of escaping without additional tax obligations, it is extremely unlikely that as an honest taxpayer, you will face criminal charges or jail time as a result of an audit.

Learn more about tax fraud and how it happens with Optima Tax Relief. If you need tax help, contact us for a free consultation.

What is Tax Evasion and How can it Affect You?

woman working with documents in office

For some, it can be a terrifying ordeal to file your tax return, especially if you forget to include vital information when filing. It is important for taxpayers to double-check whatever they have placed on their return in order to avoid the IRS further looking into your tax return. The IRS will flag a taxpayer’s return if they notice that the income reported in inaccurate, if there are too many credits and deductions placed on the return, or if a taxpayer has not filed a required tax return. Although the IRS does not pursue many tax evasion cases, it is the taxpayer’s responsibility to ensure they are filing correctly to avoid the IRS investigating them – and finding something that can send them to jail. If you still have questions on what should be included in your tax return and how to properly file, here are some ways to avoid the IRS coming after you.

The IRS will usually start off with an audit process rather than taking immediate action against a taxpayer. During the audit process, the IRS will review the tax return(s) filed by a taxpayer to see what errors were knowingly made. If the IRS sees that a taxpayer has repeatedly made the same mistakes on several of their tax returns, such as not fully disclosing large amounts of income they had been receiving throughout multiple years, it could be seen as tax evasion. If a taxpayer continuously makes false statements and hides records like bank statements from an IRS auditor, it could potentially lead to criminal prosecution.

To avoid running into trouble with the IRS, specifically avoiding an audit, or being charged with tax evasion it is important to understand what you should include on your tax return. Whatever income you are earning needs to be included on your tax return. This means that if you have a full-time job as well as a side job, you must report both sources of income. If you also meet the filing requirements, you must file your tax return with the IRS. Avoiding filing a return for multiple years could be considered tax evasion by the IRS. This could also lead to the IRS looking further into the unfiled years and file a tax return on your behalf, which could cause any owed liability to increase on top of the penalties and interest you accrue for not filing in the first place. 

Understanding the IRS as well as their rules will help you navigate the tax filing system put into place. It is up to every taxpayer to keep themselves informed on any tax changes that may occur throughout the year and to also be transparent on their tax return by disclosing any information that may be vital for the IRS to know. If you are unsure of how to file and need further assistance, you can ask the advice of a tax attorney or a tax relief company that can provide you with the necessary assistance you need in order to get compliant with the IRS.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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What Should You do if You Owe the IRS Money?

Having a tax liability with the IRS can be stressful to deal with.  It may even sound easier to avoid your debt altogether. For some taxpayers, paying back your balance to the IRS can prove to be difficult, especially if you don’t have the means to do so. You may feel as though you are backed up against a wall and that there is no hope to help resolve your current situation.  However, there are solutions to keep yourself compliant and out of collections with the IRS so you don’t have to live in constant fear that the IRS is coming after you. The IRS offers solutions for those having difficulty paying their balances in full.

Setting up a Payment Plan

It is important to first understand how much you owe. You can verify the amount owed by referring to your tax returns or by directly contacting the IRS to discuss your balance, including any tacked-on penalties and fees.  The IRS will provide you with a 433F form to fill out your income and expenses. When completing the form, be sure to exclude non-allowable expenses, such as credit card payments, pet-related expenses, or magazine subscriptions.  The IRS typically accepts payment agreements if your balance is under $10,000 and the proposed payment will pay the balance in full.  Your agreement is also required to include any accrued interest and/or penalties.

The IRS Offers Hardship Options

For those who are either unable to pay back their tax liability in full with the IRS or don’t have the ability to be on a monthly payment plan due to financial difficulty, the IRS offers hardship options. The IRS has two options available to those who need temporary relief. The first is a Currently Non Collectable agreement. The IRS will review your income, expenses, and assets to see if you are earning very little to no income. Another hardship option the IRS provides is the Partial Pay agreement. This agreement is similar to a regular installment agreement where you would make monthly payments to the IRS. However, with this agreement, you are only paying back part of the taxes you owe over time. The IRS will review this agreement approximately every two years to see if your financial income has changed. If your income has changed or you have started a new job, the IRS will send you a notice informing you that your income reflects that you have the ability to pay and request that you set up a payment plan with them. If you are attempting to request a hardship agreement with the IRS, they will request the following:

  • Last three months’ worth of bank statements 
  • Proof of income for the last three months
  • The market value for all assets
  • A list of everything that a taxpayer may own (Retirement savings, bank accounts, all sources of income, real estate property, vehicle statements, life insurance policies, etc.)

Request for an Extension 

If you do have the ability to pay your balance in full but need some time to get the money together, the IRS will allow you to request a one-time extension. You can request up to 120 days to pay your tax balance in full. It is important to keep in mind that the IRS will apply a 0.5% penalty per month for the unpaid balance and will only allow you to make this extension once. If you do miss the extension date, you will fall back into collections.

The IRS offers an array of options to ensure that you stay compliant and out of collections. If you are having difficulty paying your full tax balance to the IRS right away, it is important to know your options and what you can do to protect yourself. If you are unsure of what to do, you can always speak to a tax relief company such as Optima Tax Relief or the IRS to get a better understanding of what works best for you. 

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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The Difference Between a Lien, Levy, and Garnishment

taxes due

The IRS can be problematic to deal with – especially if you don’t have a clue about anything tax-related. For those who owe a liability to the IRS, it is important to understand how the IRS works in addition to any potential action the IRS can take against you. If a tax balance is owed, they can place you into collections, garnish your paychecks, place a lien on your physical assets, or even levy your bank account(s). Here is what you need to know about the IRS taking action against you, and how to prevent yourself from falling into collections.

Liens

A lien is something that the IRS can place against you if you owe a tax liability. The IRS has the ability to place liens on physical assets such as a home or vehicle in order to ensure they receive the maximum amount of money if a taxpayer intends on selling their assets; they will take a portion of the profit of the sold asset and apply it to the balance owed to them. You can avoid having a lien placed against you by paying your balance owed in full and on time or, if you cannot afford to pay your balance off, you can contact the IRS to see what type of payment plan options you can be placed on. 

Levies

The IRS will send several collection notices warning a taxpayer of their intent to levy if the balance owed has yet to be paid in full. A levy occurs once the IRS considers you a delinquent taxpayer and they will go after your bank accounts, wages, or property in order to settle the debt that is owed. In some cases, the IRS will only seize a small sum of money from a taxpayer.  Other times, they will take a taxpayer’s entire savings and apply it to their tax balance. To stop an IRS levy, you can contact them directly and request they release the levy if you can prove that you are currently in a hardship. They will also release their levy if you can pay the amount owed in full, the collection period to collect the liability on your balance has ended, or the value of your property is more compared to the amount owed to the IRS. 

Garnishments

The IRS can also garnish your wages if you have an unpaid balance. The IRS can legally seize your income and apply it to the balance owed to them and garnish your paychecks, commissions, or any bonuses. There are a couple of ways to stop the IRS from garnishing you, you can either pay your balance in full or contact the IRS to set up a payment plan or hardship agreement if you qualify. 

The IRS will act against those who fail to pay their tax balance and they can and potentially will attempt to garnish, levy, or place a lien against you should you ever owe a tax liability. It is expected that all taxpayers remain compliant with the IRS and adhere to the most current tax laws in order to stay out of collections. 

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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