Categories
News Tax Returns

Attention Truckers: Don’t forget to file Form 2290 this week

If you are a tractor-trailer operator or run other heavy highway equipment, you are probably already familiar with IRS Form 2290 and the payment of heavy vehicle highway use taxes. In general, this return is due on August 31st, along with payment for your vehicles that are taxed as heavy vehicls.

The deadline generally applies to Form 2290 and the accompanying tax payment for the tax year that begins on July 1, 2012, and ends on June 30, 2013. Returns must be filed and tax payments made by Aug. 31 for vehicles used on the road during July. If you put a new vehicle into service after July 2012, you will need to file another return and pay the tax on that vehicle by the end of next month after placing the vehicle in service. So, if you put a new rig into service in November, the return and the tax are both due on December 31.

The highway use tax applies to highway motor vehicles with a taxable gross weight of 55,000 pounds or more, which generally includes trucks, truck tractors, and buses. Ordinarily, vans, pick-ups, and panel trucks are not taxable because they fall below the 55,000-pound threshold. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply, which are explained in the instructions to Form 2290.

If you have not yet filed and paid these particular taxes, they are eligible for electronic filing and electronic payment through EFTPS. If you need help with the return, or getting the payment made, feel free to contact one of the tax firms listed in our directory.

Categories
Taxpayer Representation

How To Deal With An IRS Notice

Most people tend to panic when they receive a notice from the IRS. Many, many people think that by stuffing that notice under the mattress, the problem will go away. Unfortunately, it doesn’t work like that. The best way to address a notice from the IRS is to deal with it immediately and head on. Here are some tips for what to do when you receive an IRS notice.

1. Don’t panic, and don’t shred it. Most IRS notices can be dealt with pretty simply. Not quickly, but simply.

2. Be sure you understand WHAT the notice is for. The IRS sends all sorts of notices — bills for overdue taxes, requests for you to file a missing tax return, to request additional information about something, notify you of pending deadline, etc. The notice will ALWAYS thoroughly explain why you are receiving it. READ IT.

3. Every notice from the IRS will explain what you need to do with it. If they want extra information from you, it will explain what information they need. If it’s a bill, well, then they just want your money.

4. If you receive a notice about a correction to your tax return, you should review the correspondence and compare it with the information on your return.

5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

6. If you do not agree with the correction the IRS made, it is important that you respond as requested, within the time limit. Respond to the IRS in writing to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left corner of the notice. Allow at least 30 days for a response from the IRS.

7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. When you call, have a copy of your tax return and the correspondence available.

8. Keep copies of any correspondence with your tax records. Also keep record of who you talk to, including their IRS employee ID number (they’re required to give it to you), and detailed notes of your conversation.

If you receive a notice that you don’t understand or don’t agree with, then obviously consider speaking to a professional.

Categories
Tax Planning

Tips for Avoiding a 2012 Tax Bill

With the summer of 2012 coming to a close, it’s a good time to look at your tax payments you’ve made this year and see if you’re likely to accrue a tax liability for this year or not.

You should act soon to adjust yor tax withholding to bring the taxes you must pay closer to what you actually owe. If you’re ahead of schedule in terms of payments for the year, then you can reduce your withholding and actually keep more of your paycheck for the rest of the year.

Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. Each year millions of American workers have far more taxes withheld from their pay than is required. Many people anxiously wait for their tax refunds to make major purchases or pay their financial obligations. It is best, however, to not tie major financial decisions to your anticipated refund — especially if you owe back taxes for previous years, because the IRS is simply going to keep that refund, even if you filed an Offer in Compromise this year.

Here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees

New Job? When you start a new job your employer will ask you to complete Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.

Life Event? You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W–4 at anytime you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event.

If you need help determining how many exemptions to claim on your new W-4, feel free to get in touch with me.

Self-Employed

Form 1040-ES: If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

Categories
Uncategorized

Let’s talk credit card debt

I realize that this is a blog about taxes, but if you have tax debt, I assume that you have other debts as well. It has only been within the last few months that the IRS has softened their stance on allowing you to claim your minimum credit card payments as an allowable expense, so it’s a topic worth addressing.

Credit card debt in general is one of the biggest problems in our society. If you rack up a lot of it, and can’t pay it, life starts to suck when the creditors start calling. Five years ago, when I was heading into bankruptcy, one of my favorite days was the day that Qwest cut off my phone service because I couldn’t pay the bill. That was when the credit collection calls finally stopped!

If you’re looking to address your credit card debt, and other consumer debts as well, there is a simple and often repeated formula for paying down and eliminating those debts. You’ve probably heard two variations of this before, but I think they’re worth hearing again now and then.

The process is pretty simple: Make a list of all your debts, and rank them by priority based on either interest rate from highest to lowest, or by debt amount from lowest to highest. Then, take any extra money you have each month and put it towards the first item on the list.

Mathematically speaking, it’s best to rank them by interest rate. Most of the time, if you owe the IRS money, they’re going to be at the very tippy top because the combined interest and penalty rate can exceed 60% APR. However, many personal finance experts suggest doing it a little different, and paying off your smallest balances first. The rationale behind this is largely psychological, because paying off a smaller debt and being able to say, “It’s paid off!” gives a mental boost to the whole process.

After debt #1 is paid off, the money that was going towards it every month is now applied to debt #2. This accelerates payoff of that debt. Once debt #2 is paid off, the entire monthly amount from that goes to debt #3 until it’s paid off, etc. Eventually, everything is paid off.

While you’re making this debt paydown process, you’re generally making your minimum payments on your other credit cards. If you’re in a situation where money is extremely tight and you’re already several months behind on some bills, it may be worth considering stopping paying on them. If your credit score is already destroyed by being 90 days behind, being 9 MONTHS behind isn’t really going to make it much worse.

This is the strategy that I ultimately went to before my personal bankruptcy. Barely able to pay the mortgage and put food on the table, I started by no longer paying on my credit cards and unsecured lines of credit. It was more important to keep a roof over my head, the lights on, and food in my belly than to worry about my credit score and credit cards. The simple reality was that I didn’t have enough money coming in to pay everything, so I had to start making decisions about what was NOT going to get paid.

Hopefully, you aren’t or won’t get to that point, but it’s nice to know that it’s an option. Remember, debtors prison no longer exists in America, and sometimes you’ve gotta do what you’ve gotta do.

Categories
Taxpayer Representation

The Truth About Tax Resolution Fees

Within the tax resolution industry, there are a variety of fee models that you should be aware of. Different fee models have different potentials for abuse by the firm offering the services, and it is important to do your due diligence and fully understand what you are paying for, how much, and when, before ever paying a single dime to a tax resolution firm.

One of the most common fee models is a retainer model, which is a carryover from the world of legal and CPA firms from which many tax practitioners come. Under this model, you pay an up front amount, which the firm holds on to and then bills against on an hourly basis. Close to the time when the retainer is all used up, you will  get a bill showing what was done, how long it took, and the hourly rate it was billed at. This bill will usually also include a request for additional retainer. The key thing to remember here is that if you don’t keep paying, they don’t keep working.

If you’ve been researching particular companies online, you may already have come across BBB, forum, Attorney General, and other complaints against some firms that aggressively bill down retainers, and are constantly asking their clients for more money, without making much significant progress on a client’s actual tax case. It is important that you thoroughly vet a company before giving them money, in order to avoid becoming another victim of a devious company.

Another common fee model is a flat fee-for-service model. This fee model has a large number of variations, from a flat fee for a specific package of quoted services, to a “menu of services” model where each service you can order off the menu has a specific fee. This latter method is very akin to the most common pricing model used in tax return preparation, where each specific tax form has a particular fee for preparing it. You’ll see this fee model used at many CPA firms and most retail tax preparation outlets.

When you are speaking with any tax firm regarding a package of services, it is very, very important that you understand exactly what services you are being quoted for, and what the company’s policy is regarding fees for additional services. When it comes to tax matters, it is not uncommon for additional services to be required, which will require additional fees if they are not covered in the quotation you are already working under. Ideally, the sales person you speak with will have conducted a thorough analysis of your situation and will have included everything in the proposal sent to you.

When comparing proposals between multiple companies, keep in mind that you probably aren’t comparing apples and apples, but rather apples and oranges. Here are things to consider when comparing proposals between firms that are competing for your business:

  • Is any tax return preparation included in the quote?
  • Does the fee include all appeals necessary for handling your case?
  • For business owners, is Trust Fund Recovery Penalty representation included?
  • How many quarters or years of tax issues are covered by the fee quote?
  • Is a penalty abatement application included, or is that extra?
  • What specific resolution option does the fee cover, and what happens if the resolution strategy changes?

This last question is particularly important. There are some tax resolution firms that will try to sell everybody an Offer in Compromise, because they charge a higher fee for this service. However, it is critical for anybody and everybody to understand that most individuals and small businesses DO NOT QUALIFY for an Offer in Compromise. In fact, the IRS accepts less than 40% of all Offers that are ever submitted, and the only reason this number is so low is because of the high number of ineligible offers that get submitted in the first place. On top of that, less than one third of one percent of all tax debt cases are resolved through an Offer in Compromise. It is also important to understand that the average processing time for an Offer in Compromise exceeds 10 months.

What does this mean for your fee? Well, a reputable firm will conduct a thorough financial analysis, and tell you whether or not you are an Offer candidate. If you are not, then they will negotiate another resolution option for you within the same fee. If a firm tells you they will charge an additional fee for negotiating an Installment Agreement (monthly payment plan) after you’ve already paid a higher fee for an Offer in Compromise, then you should seriously question this.

You should also beware the firm that tells you that, yes, you are an Offer candidate, even when you own assets in excess of your tax liability. Simply put, if you have assets that exceed your tax debt, then the IRS will never accept your Offer. There is an incredibly rare exception to this rule, but it’s so rare that it only happens a few times per year.

Another big thing to consider when discussing fees is the issue of what’s an appropriate fee, and what is too much. The cost of a service obviously varies based on geographical location, but in general fees for tax resolution services across the country do fall into a line of what’s appropriate and what’s not. Here are some examples of what would be considered standard fee ranges for certain services:

  • Negotiating an IRS Installment Agreement, penalty abatement, and all appeals on a $40,000 personal income tax debt: $2500
  • Same as above, but on a $200,000 business employment tax debt: $5,000 to $7,000
  • Trust Fund Recovery Penalty representation: from $1,000 to $2,500, depending on the nature of the case
  • Preparing a basic personal income tax return, married filing jointly, a home, two jobs, couple kids: $300-$500
  • Preparing a small corporate income tax return with less than $250,000 per year in revenue and no significant assets: $500-$800
  • Preparing a more advanced corporate tax return with multiple shareholders, assets, high revenues, etc: $1,200-$2,500
  • Negotiating an Offer in Compromise on a $150,000 personal tax debt: $3500 to $5000
  • Negotiating the release of a wage garnishment, and nothing else: $400 to $1,000

These are just examples of the types of fees you may see when it comes to working out tax problems. There are numerous factors that go into properly quoting a tax resolution fee, but when comparing proposals, these numbers can give you a good idea of what is considered reasonable across the country.

To obtain a fee quote for tax debt representation services, contact a local firm from our directory of tax professionals.