Tag Archive for: New Orleans Tax Lawyer

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

/in /by

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.

Can IRS Hardship Status Solve My Inability to Pay Federal Tax Obligations?

/in /by

Many people recently submitted their tax return to the IRS only to discover that they could not afford to pay the tax due.  Whether you were unable to pay your tax due based on your 2012 tax return or face outstanding balances from prior tax years, the IRS is not an agency to whom anyone wants to owe money because their debt enforcement techniques are brutal, including bank levies, wage garnishments, property liens and more.  If you cannot pay your federal income tax obligation, one option is to request “Hardship Status” (Status 53).  However, this form of relief is not available to everyone and may not be your best option so we have provided an overview of IRS Currently Not Collectible Status.

When the IRS receives a request for Hardship Status via Form 433A along with supporting documents, the federal taxing agency will evaluate a taxpayer’s gross monthly income in light of certain permissible expenses.  These “allowable expenses” generally include basic necessities based on national averages as opposed to the actual amount spent by the particular taxpayer requesting relief.  Examples of these expenses include food, housing, transportation, clothing, insurance, medical expenses, mandatory payroll deductions and the like.  The value of each allowable expense will depend on one’s geographic location and number of people in one’s household.

While the amounts generally used for these allowed expenses are based on averages, the granting of hardship status is a subjective evaluation.  This means that the IRS may consider deviations from these expense numbers based on individual circumstances.  If a family is hit with unanticipated catastrophic medical expenses associated with a life-threatening illness or injuries suffered in an accident, the actual amounts spent on medical bills may be considered rather than the accepted average usually applied for this expense.  When a taxpayer has this type of extraordinary situation, it is essential to provide supporting documentation.  The IRS will carefully scrutinize and evaluate requests for hardship (currently unable to pay status) and harsh penalties may apply for cases deemed as tax fraud or as frivolous applications.

Because the IRS will review hardship status approximately every year and a half to two years, it is not a long-term solution to your tax problems.  However, if you are close to the minimum deadline before you can file for a bankruptcy or the expiration date of a collection statute, hardship status can provide you a form of protection from enforcement procedures while waiting to meet these timing requirements.

If you are facing harsh tax debt enforcement procedures by the IRS, our experienced Louisiana tax law firm may be able to help.  When you are concerned about your inability to pay your taxes, 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.

What You Need to Know About Tax Changes for 2013

/in /by

As the “fiscal cliff” deadline looms, many taxpayers are becoming increasingly nervous about how the tax changes will affect them in the upcoming year. Those who have done a bit of year-end planning may find themselves ahead of the game when April 15th rolls around. While there may be more changes to come, here are some of the changes which have already been put into place for 2013:

  • Increased limitation on 401(k) maximum amount from $17,000 -$17,500. Those over 50 are still eligible for the $5,500 “catch up provision” which could make the total pre-tax deferral amount as much as $23,000.
  • The gift tax will increase to $14,000 per person in 2013 or $28,000 for a married couple.
  • Flexible spending accounts in the workplace which had a $5,000 yearly cap will move down to $2,500 meaning you should consult a tax professional to determine the amount you choose to set aside in your FSA plan.
  • In 2013 you will be allowed up to $1,000 of tax free earnings through something known as the “kiddie tax.” Parents should consider such plans as the 529 plan, Uniform Gifts to Minors Act and Uniform Transfer to Minors Act

Depending on the outcome of the fiscal cliff talks, payroll taxes could go up, income tax rates could go up, dividend and capital gains taxes could increase and the child tax credit could be slashed in half. Lawmakers have also kicked around the idea of limiting the current deduction homeowners are allowed to take for mortgage interest—a move which could seriously impacts homeowners, particularly those with larger mortgages.

How You Can Prepare for the Changes

As always, you must keep meticulous records if you plan on itemizing deductions, and you still have until December 31st to make donations and claim them in 2013. For donations under $250, keep an accurate banking record however for donations above $250 it is necessary that you obtain a correctly worded acknowledgement letter regarding the donation. If you have mountains of medical bills and are expecting more, try to get any necessary appointments in before the end of 2012. The law currently mandates that 7.5% of wage earners’ adjusted gross income must be spent on medical and dental costs prior to itemizing them however that figure will rise to 10% in 2013.

As of January 1, 2013, workers who earn more than $200,000 will experience more deductions from their paycheck, and the Medicare tax on wages increases from 1.45 to 2.35 percent. The Educator Expense deduction in the amount of $250, given to teachers who purchased classroom items which were non-reimbursable through their school was allowed to expire along with the deduction for tuition, books and other related college expenses. If you are uncertain about how any of the tax changes which have already taken place or may occur will affect your finances it is important that you speak to a tax professional as well as a tax attorney who can help you determine the best course of action, particularly if you already owe back taxes to the IRS.

The Potential Consequences of Preparing Your Own Tax Returns

/in /by

With the advent of tax software programs, more and more people are choosing to prepare their taxes on their own. Tax software does certainly make filing for the do-it-yourselfer much easier and quicker than in the past, but this doesn’t mean there are not still circumstances under which hiring a professional may not make better sense. It’s a good idea to determine whether or not you will prepare your tax return or hire a professional well ahead of the April 15th deadline so you won’t have to scramble to find a CPA or accountant at the last minute.

When Filing Your Own Tax Return Makes Sense

Should your tax return be exceedingly simple, completely straightforward and not incorporate significant deductions then preparing your own tax return could be the way to go. Easy and straightforward mean you have no stocks, savings or securities, property you rent out and you don’t operate your own business. The person who has one job and receives a yearly W-2 from his or her employer and has no other tax situations is a prime candidate for preparing his or her return.

Preparing your own tax return can also make you much better informed regarding your financial situation. If you are forced to work through tax forms it may give you a better idea about donations you’ve made and whether there are sufficient taxes being taken from your monthly pay.  Using a tax software program allows you to prepare your taxes within your own schedule; you can begin your tax return then return to it whenever you have the time and inclination.

If you tend to procrastinate, you can even wait until April 14th to prepare your taxes and file online although this is hardly recommended. Tax software has become both inexpensive and simple and most all of the current software is user-friendly. The program will ask you questions and you will simply fill in the blanks. If your adjusted gross income falls below $57,000 you may even be able to get a free electronic filing.

Negative Aspects to Filing Your Own Tax Returns

Some of the “cons” to preparing your own taxes include the time involved, the potential complexities and the stress of doing it yourself. Believe it or not, the average person will spend 23 hours preparing and filing a 1040 form, so consider what your time is actually worth.  The standard amount to prepare and file a Federal and State return is around $200, so if you consider the time you would spend on your taxes to be worth more than $10 per hour, consider hiring a professional. Further, even with the best software you may miss deductions you are entitled to.

Even with up-to-date tax software on your side, the tax code is ridiculously complex; there have been nearly 3500 changes to the tax laws since the year 2000. If you work for yourself, receive income from freelance work, or are a small business owner, you need a professional to prepare your taxes. In the same vein, if you are a landlord, have real estate assets or investments which produce dividends then by all means, hire a professional tax preparer, CPA or accountant. In any of these situations, an error on your tax return can be costly, and, in the end, hiring a tax professional to prepare your taxes can alleviate much of the stress which accompanies tax season. If you have any doubts about your tax situation or past tax returns, it can be very advantageous to consult a tax attorney to ensure you stay right with the IRS.

 

Potential IRS Problems for the Self-Employed

/in /by

According to the IRS a staggering 30 million United States taxpayers have some type of compliance or collection “issue.” Of course this could include something as relatively minor as an unfiled tax return or a more serious pending federal tax lien or non-payment of back taxes. Far and away the most frequent issues targeted by the IRS come from self-employed taxpayers who have failed to file a return, paid no taxes or didn’t pay enough taxes. Those who are self-employed may feel – at least in the beginning – that being self-employed means being their own boss and doing whatever they please. Of course the reality of running a business every day will soon set in and some days the self-employed may wish they were back at a 9-5 job where the responsibilities are greatly reduced.

You Must Act Like the Boss

The main thing the self-employed person must remember is that he or she is the boss—even the boss of oneself. As such there are specific tasks and responsibilities that the self-employed person must be disciplined enough to keep up with. The self-employed business owner must either take the necessary time to learn the tax laws which relate to their specific business or must hire a trusted, skilled professional to take care of taxes. A bookkeeping system which meshes with tax laws is crucial as well. Unfortunately a great number of us absolutely loathe paperwork—including tax preparation—and avoid dealing with it until there are penalties and costs involved.

Audit Flags

If you happen to be self-employed then you are already at a much higher risk of being audited, particularly if you claim deductions—even perfectly legitimate deductions. If you are audited by the IRS, they can-and will- ask for all your financial records. The primary issues the IRS will be looking for during an audit will be whether you reported all business sales and receipts, whether or not your lifestyle seems to exceed the income you reported, whether or not you reported your cash transactions, whether you used personal deductions on your business taxes, whether your payroll deposits were correctly done and how you are classifying your employees. (Some small businesses classify regular employees as independent contractors in an attempt to avoid payroll taxes and the headaches which accompany them.)

If you do have regular employees, never, ever “borrow” from this fund thinking you will pay it back next week or next month or next year. In most cases that never happens and suddenly you are being audited for failure to make the required federal payroll tax deposits. The penalties and interest can be huge, and you could even be subject to criminal charges, so always make sure your employee payroll taxes are correct and up-to-date.

Excessive receipts for business trips and dinners are also red-flags to the IRS, so keep them to a minimum and ensure you keep meticulous receipts and records for absolutely everything you might potentially use as a deduction on your taxes. If you find yourself in over your head, or under threat of an IRS audit, contact a knowledgeable tax attorney immediately in order to get the help you need.

How to Reach an Installment Agreement with the IRS

/in /by

If you owe the Internal Revenue Service a great deal of money and are full of despair as to how you will ever get it paid off, you might want to consider a plan where you will make a monthly  disbursement or installment agreement in order to gradually get your outstanding balance paid down. The IRS has various forms of installment agreements and it’s important that you understand which type you might qualify for prior to speaking with an IRS representative.

Types of IRS Installment Agreements

If you have a balance due of less than $10,000 and you have not filed late for the past sixty months you may qualify for a guaranteed installment agreement so long as you have filed your tax returns in a timely manner. If an installment agreement will allow you to repay the entire balance owed within three years or less then you could qualify so long as you have not had an installment agreement with the IRS in the past sixty months. You must also agree that in the future you will meet all tax deadlines and pay the IRS what you owe aside from the amount of the installment agreement.  The minimum amount the IRS will agree to when negotiating an installment agreement will be the total amount you owe divided by 30. The primary benefit to entering into an installment agreement with the IRS is that you will not be subject to an IRS lien against your property. A tax lien can have an extremely negative impact on your creditworthiness in the future therefore it can be extremely beneficial to work out an agreement with the IRS.

A streamlined installment agreement could be an option for you if the total amount you owe the IRS is less than $50,000 and you can commit to paying off the entire balance in six years or less. The IRS calls this installment agreement the “Fresh Start Initiative.” Because the IRS has a ten-year statute of limitations regarding collections, if your amount owed with expire during your five-year installment period you will be required to pay the full amount before the statute expires. You must also agree to file all tax returns on time and pay future taxes before the IRS will agree to a streamlined agreement.

A third type of installment agreement is known as a partial payment installment agreement. If you cannot manage the lowest payments for the other types of installment agreements the IRS might consider this type of agreement which bases the minimum payment on what you are actually able to afford after you have paid all your necessary living expenses each month. An extended term of repayment will likely be required and you could be subject to a tax lien; you will be required to fill out a financial statement and provide all supporting documentation. In the case of a partial payment installment agreement the IRS can re-evaluate your ability to pay every couple of years.

Finally, an option known as a “non-streamlined” installment agreement could be a possibility for those who owe more than $25,000 and need longer than five years to pay off the amount owed. You will be required to provide financial statements and will be subject to an IRS lien. The IRS may ask you to sell certain assets, take out a bank loan or even a second mortgage in order to pay them in full.

Reaching an Installment Agreement

You must know how much you owe in unpaid taxes either through your own tax returns or by calling the IRS. The IRS will charge a fee for setting up your installment plan ranging from $45-$105. You will file a request for an installment agreement with the IRS and will choose your monthly payment amount. Expect to wait at least 30 days before the IRS responds to your request, then when your request is approved you must make payments each and every month without fail. It is a good idea to consult with a tax attorney prior to attempting to reach an installment agreement with the IRS. There may be issues you are unaware of which could make a significant difference in the outcome of your past due taxes.

 

What if You Have Avoided Filing Taxes for Years?

/in /by

There are many people in the United States who have neglected to take care of past due tax returns—even for more than a few years. Perhaps times were tough and they thought they would catch up on the taxes once their economic situation improved yet now there are potentially years of past due returns piling up and the chore seems simply overwhelming. Some research points to the fact that as many as a quarter of all Americans don’t file their tax returns at all or file fraudulent tax returns.

The Crime of Failure to Pay Taxes

Technically, failure to file a tax return and send in money you owe is a misdemeanor for which you could incur charges up to $25,000 for every tax year you are delinquent and could even be imprisoned for up to a year. Before you panic, you should know that the IRS really has no interest in sending people to jail—they simply want their money. Additionally, it is unlikely the IRS will prosecute someone who voluntarily contacts the IRS in order to take care of their back taxes. Generally the only people who actually end up in prison for neglecting to pay their taxes are highly public figures that the IRS wants to make an example of or cases which exhibit willful and blatant fraud. So, the IRS will likely not imprison you but they will almost certainly assess fines as well as interest for the taxes you neglected to pay in past years.

Penalties Assessed by the IRS

If there is any positive information involved here, it could be that the IRS is not allowed to charge penalties more than 25% of taxes due for any given year. Interest, on the other hand can continue to stack up. It is worth the effort to attempt to convince the IRS to decrease your penalties although you have to come up with a plausible explanation as to why you did not file your taxes. Keeping in mind that there is little the IRS will consider a reasonable excuse, you might be able to use any of these circumstances: a family member who suddenly died, a divorce, a diagnosis of a mental illness, rehab treatment for alcohol or drug abuse, extended military service or terrible advice from your accountant.

Substitute for Return Form

Most people have never heard of a Substitute for Return form, but the IRS sometimes uses them to file returns for those people who neglect to file their own. The IRS will compute what they think you might owe therefore when you actually get around to filing your own tax returns you will need to adjust these tax returns in order to take advantage of specific deductions you might have qualified for during each specific year.

How to Fix Your Tax Tangle

The first stage in fixing your situation must be to call the IRS; before they will talk to you it will be necessary for you to provide personal information which allows the IRS to identify you. The IRS will likely ask for a definite timeline in which you agree to file all your past due tax returns. Should you find yourself unable to meet this deadline, call and request an extension. It can be a very good idea during this time to consult a tax attorney who can best determine how you should proceed in order to pay the least amount of penalties and not risk any type of criminal prosecution. Once you have your tax situation in hand, never let a year go by without filing your tax returns!

Tax Planning Tips for Small Businesses

/in /by

Business owners are generally required to pay a variety of taxes associated with their business. If the business owner owns real estate associated with the business then property taxes must be paid to the city or county where the property is located. Businesses which engage in transportation, communications or fuel consumption will also be required to pay excise taxes. Some states implement gross receipts tax rather than a state income tax meaning the revenues on your business will be taxes. Most states also require that merchants collect sales tax and pay to their state department of revenue.

Of course all businesses will pay income tax, or the tax on their business revenues minus any deductible expenses. If you are a sole proprietor or partner of a business then you will be required to pay self-employment taxes based on your business income for social security and Medicare purposes. If your business is large enough to have employees, then you will be required to collect payroll taxes from your employee’s paychecks, match some of those funds from your business revenue and send in to the IRS. Unfortunately, the IRS code can be incredibly complex and it can be both frustrating and time-consuming for small business owners to ensure all taxes are paid on time and in the correct amount. If you designate a regular time each month in which you work on business taxes—and nothing else—will keep your business current and ensure you don’t miss any deadlines.

Making Tax Season Easier

To make the tax season less painful, keep your financial records in good shape throughout the year rather than making a frantic, last-minute effort to find everything you need and put it together. Keeping a ledger book of expenses and receipts; keeping everything organized will make it much more likely you will be able to deduct certain business expenses and save some money at tax time. Although it can be time-consuming, try to stay up-to-date on what deductions you are allowed and what you will need to have on hand to prove those deductions. Keep original receipts for entertainment, travel, meals, home office expenses and health insurance if you are self-insured. Although it may sound like an unnecessary expense, hiring a professional CPA to do your business books can not only save you time and headaches during tax season, but can help you make better decisions all year long.

Using accounting software with payroll functions is the easiest way to ensure your payroll records are accurate and effective. Some software programs also alerts the user to changes in tax laws, calculates withholding amounts and provides financial reports to save time during tax season. Online tax filing can also streamline your tax season; online filing is easy, efficient and saves you considerable amounts of time over doing it the “old-fashioned” way. Most tax software programs also offer support should you have any questions or problems during filing.

Business Deductions That Will Save You Money

If you use your car for business purposes you are allowed to deduct a portion of the costs including mileage, toll fees, maintenance and repairs. Some advertising expenses are allowed as are subscriptions to magazines or journals which relate to your business or industry. Travel miles logged for business are deductible as well as specific computer software purchased for your business. If you pay employment taxes, your share is a deductible business expense and health and life insurance plans for your employees are deductible as well. The percentage of your home that is used for a home office is a deductible business expense and all educational expenses related to your business which are used to improve your skills are also deductible. Cell phone usage can now be deducted without the requirement of extra documentation and start-up businesses can deduct up to $10,000 in expenditures. Even if you take advantage of all these tips and are super-organized when tax season rolls around, it can still be extremely advantageous to consult with a tax attorney who can give you extra information regarding your business taxes.

 

The Most Common IRS Notices—and How to Respond to Them

/in /by

Most people who receive IRS notices or letters in the mail experience a sense of fear or panic before they’ve even opened the notice. While it’s true that the notice you receive may sound formal and even harsh, generally speaking you can settle most issues with a calm head and a few simple steps. So, take a deep breath and read through the notice carefully, making a note of the number of the form and the bottom line as to what the IRS wants from you. The IRS tends to be very systematic and generally speaking they make few mistakes, but occasionally people do receive notices in error so it’s essential that you approach the situation with a clear head. Once you have determined if the letter is correct, you can either do your own research and map a plan of action in response or you can contact a knowledgeable tax attorney who can make the situation seem much less frightening. Some examples of some of the more common IRS notices–along with an explanation of why you may have received your notice—are below.

  1. CP-11 IRS Notice—If you receive a CP-11 notice from the IRS it means there were changes made to a tax return by the IRS which caused you to owe money. The form should clearly show which changes in your return resulted in taxes being owed and should explain how and why the changes were made. If you made a calculation error, then the notice should indicate “math error.” There will be a three-digit code which is assigned to each change which was made on your return. Your notice should also explain what you need to do if you agree with the changes and what you need to do if you disagree with the changes made to your filed form.
  2. CP-88 IRS Notice—This notice from the IRS is to let you know they are holding on to your tax refund rather than sending it to you. Of course this type of notice will cause you dismay, particularly if you were counting on your refund to pay bills. Generally the notice will inform you that you are not entitled to a refund because you neglected to file the proper tax forms in the prior year. You will not be able to receive your refund until you’ve filed all the necessary returns.
  3. CP 90/ CP 297/ CP 297A/ LT 11 or L 1058—Any of these notices are very serious and you should take them seriously. If you receive a CP 90 notice this means the IRS is letting you know they intend to take a portion of federal payments which you normally receive. This could be in the form of salary, Social Security benefits or retirement benefits. A CP-90 or CP 297 notice means the IRS intends to levy your properties, bank accounts, vehicle, business assets or wages. Should you ignore these initial notices of intent to levy, you will receive a CP 501 which is your first reminder letter. A CP-503 is your second reminder letter, and a CP 504 is last notice of money owed and at this point in the procedure a Federal Tax Lien may be placed against you if you are unwise enough to ignore this particular notice. If you do ignore a CP 504 then you will receive an LT 11 or L 1058 which is a formal letter sent after you have ignored all prior notices giving you 30 days to make the situation right or risk having your bank accounts levied.
  4. CP 523 IRS Notice—This is a notice that you have not paid your installment agreement as promised, for whatever reason. If a CP 523 is sent to you this means the IRS is giving you notice that they intend to revoke your agreement due to your failure to pay.

While receipt of any of these notices can surely ruin your day, there are legal channels to deal with them. If you have further questions you should consult a tax attorney who can more fully explain your rights to you.

More Taxpayers Will Qualify as “Innocent Spouse”

/0 Comments/in /by

In Notice 2012-8, the IRS is proposing to expand how the IRS will consider abuse and financial control by the non-requesting spouse in determining whether the requesting spouse will qualify as an “Innocent Spouse.” The IRS seeks to use abuse or lack of financial control to mitigate other factors that might preclude the requesting spouse from equitable relief under the “Innocent Spouse” provisions. The IRS indicates that it will immediately begin using the new guidelines when evaluating “Innocent Spouse” cases.

See IRS Notice 2012-8, at http://www.irs.gov/pub/irs-drop/n-12-08.pdf.

Whether you’re experiencing trouble with IRS or state audits, or you just want to make sure you avoid such unpleasantries in the future, we’re there to help protect you, your money, and your business.

A member of the state bar in both Louisiana and Mississippi, Mr. Grego offers flexible appointments, affordable rates, and invaluable counsel that may easily save you a bundle. When you need a tax attorney in Jackson, MS, Baton Rouge, New Orleans  or the surrounding areas, The Law Office Of Paul Grego is your one-size-fits-all solution for all your financial and tax-related concerns.