Why You Might Want to Use a Credit Card to Pay Your Unpaid Federal Income Tax

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Anyone who has struggled to pay the IRS knows that it is the most brutal debt enforcement entity.  When it comes to enforcing payments, the tools and weapons available to the IRS to pursue unpaid tax can be financially devastating.  Because of the enormous power of the IRS and broad range of debt collection tools at its disposal, it might be better to owe your credit card company than the IRS.  While it may seem counter-intuitive to suggest paying your federal income tax by charging the amount owed to a credit card, a closer look provides some insight as to why this approach can make sense.

If you fall behind on credit card payments or cannot pay the obligation, the credit card company can sue and attempt to obtain a judgment.  This judgment can be enforced by imposing a lien on your property or garnishing your wages.  However, the credit card company must obtain a judgment to enforce these penalties so the financial institution has an incentive to negotiate with you.  Another key advantage to using your credit card to pay off federal income tax debt is that a credit card company cannot pursue you into “debtors’ prison.”

If you do not fulfill your tax obligations, the IRS has far more powerful remedies available that do not require a judgment.  The IRS can take any of the following steps to enforce your tax debt:

  • Garnish your wages
  • Seize your assets like your home, motor vehicles and retirement accounts
  • Take your commissions
  • Levy against your bank account
  • Intercept your accounts receivable
  • Shut down your business
  • File a lien against your real estate
  • Charge you with a crime

We are not advocating stiffing your credit card company, but given this list of remedies that may be employed without court action, you might be better off owing the IRS than a financial institution.  If you are considering this option, it is important to act promptly to avoid making the situation worse.  Many people need to refinance their home to draw equity to solve financial problems.  Once the IRS damages your credit or places a lien on your real property, your financial options for solving tax problems may be far more limited.

If you are subject to an unpaid tax obligation that you are unable to pay, Mr. Grego may be able to assist you in getting the IRS to accept an offer in compromise or otherwise help you avoid the harsh debt enforcement power of the IRS.  If you have tax questions, you should contact experienced Louisiana tax attorney Paul A. Grego.  We offer a free initial consultation so that we can answer your questions and provide an initial assessment of your situation.  Call us today at 504-302-4949 or email us.

Should I Pay My Spouse for Working in the Family Business?

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If you are a professional like an attorney or doctor with your own practice or you run another type of family business, there is a good chance that your spouse works for the family owned enterprise.  Experienced Louisiana tax attorney Paul A. Grego often receives questions about the tax implications and merits of paying one’s spouse a salary.  Many people simply elect not pay their spouse a salary to avoid the payroll taxes because the income/profit will end up in a joint bank account so there is no justification for incurring the additional payroll tax obligation.  However, Mr. Grego has provided some reasons that it may be worth paying your spouse a salary:

Deduction of Medical Insurance Premiums: If the business owner is currently deducting family medical expenses on the first page of the 1040, a tax savings can be generated by making one’s employee spouse the insured.  This makes the medical insurance a business expense that may be reported on Schedule C.  When this slight adjustment is made, the parties receive a 3.8 percent savings on the Medicare portion of the self-employment tax.

Maximizing the Dependent Care Credit: The parties cannot qualify for the dependent care credit unless both spouses have earned income.  If you pay your spouse a salary, you may claim the earned income credit of up to $1,200.

Increasing Future Social Security Benefits: The amount of social security payments received by a person is based on his or her 35 highest earning years.  The income paid through the family owned business may be factored in with income during other years to increase this benefit level.

Building Credit: This situation may be relevant if the parties switch roles as the primary breadwinner in the future.  The owner of a professional practice may decide to take time out of the workforce for pregnancy or to care of young children.  In this situation, the fact you paid your spouse made a salary may make it easier for the spouse to qualify for credit later in the relationship.

These are just a few ways that slight changes in the structure of your professional practice or family business can yield positive tax consequences.  Mr. Grego frequently assists clients in structuring their business in a manner to minimize their tax burden and increase their take home pay.  If you have questions about optimizing your business structure to maximize tax avoidance, Mr. Grego provides effective business planning.  If you have tax questions, you should contact experienced Louisiana tax attorney Paul A. Grego.  We offer a free initial consultation so that we can answer your questions and provide an initial assessment of your situation.  Call us today at 504-302-4949 or email us.