Eight Ways to Get Ready for Tax Season and Avoid a Back Tax Problem
The holidays are just around the corner. Not to be a grinch but right around the holidays is a less fondly anticipated time of year - TAXES!! Before you know it, you will be taking down the Christmas tree, pulling down the holiday lights, and getting ready for the next tax season.
Tax season is a lot less fun than the holiday season (pumpkin pie, cookies, and candy vs. tax forms - a no-brainer - as well as the religious significance of Christmas!). However, these two times of the year do have one thing in common. Just like the holidays, tax season requires lots of preparation and planning, and if you want to be ready, you need to start early.
Why am I writing this article? We don’t prepare returns for a living. It’s not to spoil your holiday cheer. The reason is we’ve seen what it’s like when you’re not prepared. We help people who fall behind on their taxes and owe the IRS tens of thousands of dollars in back taxes. They often owe a lot of taxes because they failed to prepare, and they procrastinated on their taxes.
If you do get in trouble with the IRS and they claim you owe $10,000 or more, reach out to our tax law firm, and we’ll schedule a confidential consultation to explain your options in full to resolve your tax problem permanently.
So if you don’t want to end up owing the IRS a ton of money, here are eight ways to get ready for tax season and reduce your stress level as this annual ritual approaches.
#1 Organize your records.
Now is the time to drag out last year’s tax return, pull out your most recent pay stub, and get organized before the season starts.
#2 Settle any back taxes you might owe.
If you have years of unfiled returns or have a tax issue for anything besides the current year, you should get this looked at before the upcoming tax season. When April 15th comes around, your accountant is likely swamped with returns, and they’ll pay less attention to your back tax debt. We recommend reaching out to a professional tax law firm like ours that handles complicated tax debt cases all year round. Advanced planning can help make you eligible for some forms of tax relief you may not be eligible for right now.
#3 Defer bonuses and incentive pay.
If you’re going to owe taxes, it might make sense to defer getting paid so you can lower your taxable income. If you can, you might want to defer any bonuses and incentive payments. You can also defer payments from retirement accounts and IRAs to save on current-year taxes.
#4 Look for additional deductions.
Now is the time to make those last-minute donations to charity, so start writing those checks and gathering up those household goods. Be sure to get a receipt and save your canceled checks so you can substantiate your charitable giving if a question should arise later. (If you give household items to a charity like Goodwill, make sure your receipt has on it itemized what you gave to them. I’ve had charities hand me a blank form that didn’t list any of the items I gave.)
#5 Expand your education.
Not only can taking a class to improve your business or career prospects and help you get ahead, but that additional education could also lower your tax bill. You might qualify for a generous tax credit or take a good tax deduction for investing in your future. (Reminder - it must be related to your current skills for your job or business, not to qualify you for a different trade or business.)
#6 Up your retirement savings.
The end of the year is the perfect time to increase your 401(k) contributions and make your annual IRA investment. Maxing out your 401(k) and IRA contributions is one of the best ways to reduce your tax bill while saving for the future.
#7 Sell your losers and let your winners run.
If you have substantial capital gains in your stock portfolio or crypto portfolio, selling your losers could lower your tax bill. You can use those losses to offset your capital gains and save money on your taxes.
#8 Estimate your income for tax planning.
You will not know the exact amount of income you received until all your documents are in, but you can estimate your compensation and start some advanced tax planning. This can be key in preventing back tax debt since you won’t be blindsided by a large tax bill come April 15th.
Tax season will be here before you know it, and now is the time to get ready. You do not have to wait until April to start your tax planning, and the sooner you get started, the sooner you can put this unpleasant task behind you.
Bonus Reason: If you fail or failed in the past to organize your records to prepare for tax season, don’t think you are qualified to handle your tax problem when one arises. DIY is organizing your records so that you do not blotch the job. If you didn’t organize your records, it’s a tell-tell sign you need professional help. Not planning in advance is another sign, too.
Need Tax Relief?
If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, and we’ll schedule a no-obligation confidential consultation to explain your options to resolve your tax problem permanently.
Tips for Finding a Qualified Tax Resolution Firm
Given how high the stakes are, how little thought many people give to their taxes is surprising. All too often, individuals walk into a neighborhood storefront, hand over their most personal information, and trust the person on the other side of the desk to do the right thing and prepare their taxes properly. How much training did they have? How many seminars did they attend to keep up with the ever-changing world of tax law?
In many cases, that trust is well placed, and the individual preparing the taxes is indeed the honest and trustworthy professional they claim to be. In other cases, however, the trust is misplaced, and the tax preparer will end up making mistakes that could cost the individual a great deal. If an audit is triggered by deliberate misrepresentation or unintentional mistake, you will still be on the hook for any additional taxes, interest, and penalties.
If you’re in tax trouble because you trusted the wrong tax preparer, then you will need a qualified tax resolution firm to help you resolve your tax problem. However, you don’t want to repeat the same mistake twice! So it is important to do your homework and know what to look for in a tax resolution firm. Here are four quick tips to help you find a qualified tax resolution firm.
#1 Read Their Reviews Online
You can quickly see if the tax resolution firm is reputable and stands by its clients by reading online reviews. A lot of the big national firms will have terrible reviews, but they market themselves heavily, so consumers don’t think twice about their reputation.
If you owe back taxes, waiting can cost you a lot of money and if the tax resolution firm disappears on you or doesn’t return your call, that wasted time could cost you dearly. This can easily be avoided by seeing if they have good online reviews about their services.
#2 Make Sure the Tax Resolution Firm Has Experience and A Proven Track Record
Negotiating with the IRS to settle your tax debt is a unique skill that not all tax attorneys or tax professionals have. It’s important to ask about their recent case settlements and success stories. A true tax resolution professional will have proof they’ve done this before and successfully helped resolve back tax problems.
#3 What Does Their Communication Look Like Once You Sign-On?
A professional and experienced firm will have systems in place to make sure you’re updated regularly on your tax resolution case. The IRS moves slow and there will likely be big gaps in time in between updates from the IRS. That doesn’t mean the tax relief firm should also have gaps in communication.
Ask how long they think it’ll take to resolve your tax problem, and how you’ll be updated even if they don’t have any news from the IRS.
#4 Avoid Big National Firms With Salespeople Who Promise The Moon But Don’t Deliver
You’ve heard their ads on the radio or TV. If you call a big national firm you’ll likely get a salesperson who knows very little about taxes or how to settle your tax debt. Many will promise things they can’t possibly deliver. They are trying to sell you. Beware.
Not every taxpayer qualifies for all the IRS tax debt settlement programs. If everyone could get a reduction in their taxes simply by not paying the IRS no one would ever pay their taxes. However, these salespeople will promise you the moon but will fail to deliver because they didn’t take the time to understand your specific situation, they are just telling you what they think you would like to hear, and they’re not actually licensed tax resolution professionals. I am licensed by the Indiana State Bar, the Alabama State Bar, and admitted to numerous federal district and appellate courts, the United States Supreme Court, and U.S. Tax Court.
Make sure to ask who will be responsible for your case. A true tax resolution professional will be happy to answer your questions. be sure you can understand your case, and offer you the right solution.
Remember, if it sounds too good to be true, it probably is. Unfortunately, I have had a lot of people come to see me after they had signed up with a big out-of-state firm that did not accomplish what needed to be done to resolve their problem.
Need Tax Relief?
If you want a tax attorney who is a professional that knows how to navigate the IRS maze, reach out to our law firm and we’ll schedule a confidential consultation to explain your options to permanently resolve your tax problem. We help people get their life back from the IRS.
Four Common Tax Return Mistakes That Could Get You in Trouble with the IRS
As the tax-filing season unfolds (the October 15th deadline is just around the corner if you filed an extension), many taxpayers are doing their own taxes. Though it may seem like a good idea for the individual taxpayer, it’s important to watch out for common tax filing mistakes. Tax preparation software makes some errors like addition and subtraction blunders less likely, but even the best software cannot eliminate all potential problems and human error. (Also, every year, I have someone in my office who either used tax software or accounting software who did not know what they were doing, and they are being audited. Trying to save a few bucks by doing it yourself can be a really big and costly mistake.)
If you are getting ready to file your tax return, be sure to take a second (or third) look before you hit send. Keeping a close eye out for these common tax filing mistakes is the best way to ensure the IRS does not come knocking at your door.
Note: If you do get in trouble with the IRS and they claim you owe $10,o00 or more, reach out to our tax law firm, and we’ll schedule a confidential consultation to explain your options fully to permanently resolve your tax problem.
That said, let’s jump into the four common tax return mistakes that could land you in tax trouble if you self-prepare your tax return.
#1. Transposed Numbers
If the Form 1099 you receive shows $6,300 in income and you inadvertently enter $3,600 instead, the IRS may see this as a tax dodge instead of an innocent mistake. At best, transposing numbers will slow down your refund (if you qualify for one) and raise a red flag with the IRS and State of Indiana Department of Revenue. At worst, it could trigger an audit or further examination of your entire return.
IRS computers are very good at comparing the figures taxpayers report to those they receive independently from banks, brokerage firms, and other agencies. Be sure to double-check and verify every number you enter and make sure it is correct. Your tax software can tell you if your numbers do not add up, but it cannot catch transposed figures (“Garbage in, garbage out”).
#2. Misspelled Names
It is easy to misspell a name or transpose a Social Security number when entering dependent information, but doing so could cause real problems with your return. Be sure to double-check all your children’s names, ages, and Social Security numbers before sending your return to the IRS. The IRS looks at that information on whether you claimed the right amount of exemptions and whether you are eligible to claim and receive Child Tax Credits and the Earned Income Credit.
Do not assume that all of that information will be transferred from a prior year’s return.
#3. Missing Social Security Numbers
It is easy to forget this vital piece of information, and doing so could delay your return and cause long-lasting problems. You may assume that your tax prep software will automatically enter your Social Security number, but that does not always happen.
Be sure to give your Social Security number (and that of your spouse) one last look before filing your return. That last- minute check could save you a world of trouble later on.
#4. Not Reporting All Your Income or Taking Too Many Deductions
The IRS will likely get notified of income you received throughout the year, and it doesn’t just include your W2 wages. It’s important to keep track of all your income and report it to the IRS correctly to avoid any problems.
It can also be tempting to click a few extra boxes and input a few made-up numbers as deductions to bring your tax liability down. DO NOT DO THIS. Just because the software lets you do this, doesn’t mean you should. REPORTING FALSE INFORMATION TO THE IRS IS A CRIME! THE U.S. JUSTICE DEPARTMENT PROSECUTES PEOPLE WHO ENGAGE IN TAX FRAUD!! Don’t for a minute think that everyone does it. They don’t and stop for a minute and think how lame that sounds to a judge and jury. That logic is why a number of people have gone to jail for tax fraud. It is not worth ruining the rest of your life and also all of your family members’ lives, too.
I know the first thing you will do when you see what you owe will be to think about what you can do to bring down your tax bill. That’s normal, but they have to be legitimate expenses, deductions, and credits. It’s not the software’s job to tell you whether or not you should be taking that extra deduction or write off. It’s the taxpayer's job, to be honest, and file their tax returns correctly. Carefully consider do you have good documentation to substantiate what you are claiming?
NEED TAX RELIEF?
Does the IRS Disagree with Your Income Figures? 7 Critical Steps to Take Next
One of the scariest things that can befall a taxpayer is the dreaded notice from the IRS stating you owe them more money than you can pay. When you open up the mailbox and see the return address of the IRS staring back at you, your heart is bound to skip a beat (or two).
Few people look forward to communicating with the IRS, but many taxpayers receive these notices every year. Knowing what to do next could make all the difference and possibly save your bank account if you find yourself on the receiving end of such a notice. Here are seven critical steps to take if the IRS disagrees with the income (or expense) figures you have reported.
Note: If you fall behind on filing your taxes, you’re not alone. We can help. Reach out to our tax law firm. We can help you determine how many returns you have to file to get back into good graces with the IRS. It may not be as many as you think or did not file. We have helped countless numbers of clients. We can do everything from helping you file late tax returns and negotiate with the IRS if you owe back taxes.
1. Stop panicking. Getting a letter from the IRS is enough to send your heart racing, but it is not the end of the world, and panic will not help you. Staying calm and reviewing the communication will be critical, so settle your nerves and move on to the next steps.
2. Review the document carefully. The letter you received from the IRS should lay out where they disagree with your figures and what they used to come up with their own math. (Many times, the IRS is anything but clear.) Reviewing these figures is the critical next step, and it is one you should take your time with when you check it. After trying to understand what the IRS says if you don’t understand what the IRS is saying, get professional help.
3. Pull a copy of the tax return in question. The communication you received from the IRS will tell you which year’s tax return is in question, so pulling a copy of that return should be your next step. Once you have the document in hand, you can review the figures and see the discrepancies.
4. Find your supporting documents. In many cases, these discrepancies are caused by simple errors like transposed numbers, so compare the figures on the supporting documents to what ended up on your return. You may find, for instance, that you reported interest of $2,150 as $1,250, and the solution could be as simple as ponying up the extra tax.
5. Contact a tax professional in handling tax problems - a tax attorney experienced in tax resolution. If you used a professional tax preparer, you might be tempted to talk to them first. That might be ok, but if you owe a large amount of back taxes, they might not be able to help. That’s where a good tax law firm can help. Our firm routinely deals with this kind of problem. We can actually negotiate on your behalf with the IRS and find the best resolution for your tax situation. Sometimes we can settle for less than what you owe in taxes!
6. Review the letter from the IRS. Suppose you did make a mistake on your tax return. In that case, you can simply agree to the figures the IRS reported and pay the additional tax, along with any applicable penalties and interest. If you disagree, you can respond with the supporting documents that prove your case. We don’t suggest you do this yourself. Remember that whatever you say or provide is “on the record.” Call our tax law firm to make sure you investigate the issue in its entirety. Otherwise, you could land yourself in more trouble. Remember, IRS notices have short deadlines for you to respond. You can miss important deadlines if you don’t take immediate action. You don’t want to end up owing the IRS money you should not owe them simply because you didn’t review a letter from the IRS and didn’t take timely action.
7. Follow up. It can take some time for these discrepancies to be resolved, so you will need to bring a healthy dose of patience. If you agree with the notice and choose to pay the extra tax, you can see when your check is cashed or the money is taken out of your account, documenting the situation and keeping careful records. If you disagree, you will need to wait for the IRS to respond, but make sure you don’t assume the issue is resolved unless you have a written document from the IRS stating that. In many cases, these are situations where you should try to handle it yourself without professional help.
If you do need to contact the IRS, keep in mind that their phone lines are extremely busy. Many people who have been through this trauma recommend calling early in the morning, right after the phone lines open, so you can get in line and get your questions answered before the lines fill up.
We NEVER suggest our clients try to contact the IRS on their own. It would be like going to court without a lawyer. The IRS is not your friend. Their sole responsibility in these cases is to collect taxes they think you owe them. While they will be professional and polite, don’t think for a minute that they are looking out for your best interests or trying to be your friend. That is not their job. Their job is to collect money, not to represent you. Representing you is our job if you decide you want our help.
Hopefully, you will never be on the receiving end of a nasty letter from the IRS. However, it is important to be prepared. If you do find a letter from the IRS in your mailbox, following the seven critical steps listed above could save you from further trouble.
Which Tax Records to Keep and For How Long? Do This And NOT THAT With Your Tax Records to Avoid Tax Problems Later.
Whether you are expecting a nice tax refund or preparing to write a big scary check, you know that April 15th is the annual tax filing deadline. What you may not know or remember, however, is that every day is tax day at the IRS. The IRS is always reviewing the information taxpayers, and business owners have provided.
You see, millions of Americans get letters from the IRS stating they owe back taxes or requesting more information about their tax returns. Their mistake is that they didn’t keep receipts, bills, mileage logs, or other documents they needed to prove expenses, deductions, or other items on their tax returns. Mileage logs are one of the first things the IRS asks for in an audit because most people either didn’t keep one when they drove the mileage or they didn’t keep it after their return was filed. (You have to keep one to be able to deduct mileage, no log, no allowable deduction.) That means that keeping tax records is more than just smart bookkeeping - it is essential self-defense with the IRS.
The fact is that the much feared IRS can request additional documentation for up to three years after the annual tax deadline has come and gone. However, there might be more bad news. If the IRS suspects you’ve committed fraud or they find a substantial understatement of income (understated by 25%), the IRS can look back at six years of your tax returns and require proof for anything on your tax return. It may be disconcerting, but the IRS has the right to request additional information months or even years after you filed your tax return.
There is another category of documents you should always keep, regardless of how many years have passed since you filed your tax return. I call this the keep them forever rule. These are documents that show what you contributed to your retirement account – IRAs or Roth IRAs. Keep all of your retirement account statements and other documents. If you make an IRA or Roth contribution, the trustee will issue you a Form 5498. Keep this form!
Also, in the keep them forever group are documents that show how much you paid for an investment or your home and any capital improvements (ex. expenses for kitchen or bathroom remodeling, etc.). When you sell your home, if you sell it for more than you paid for it, you will need these documents to show what you paid for them and any improvements made to the property. You don’t want to have a big tax bill because you didn’t keep those documents in your tax records.
We help people resolve their tax problems. Whether it’s defending people who are audited, solving back taxes that are owed, or representation in U.S. Tax Court, we need good records to protect you. That’s why saving your tax records is essential. It can be the difference between ending up not owing to the IRS anything, settling your tax debt, or facing a huge tax bill because you shot yourself in the foot by initially not keeping tax records and keeping them for the right amount of time.
As a result, it is crucial to retain your tax records and keep certain tax documents on hand, just in case the IRS asks for them. Here are the most common tax records and how long you should keep them around.
If you are being audited or owe back taxes, our firm can help defend you and negotiate with the IRS, and if you owe money, potentially settle your tax debt or work out a payment plan. Call us today. You can leave your worries at our door. Our law firm can navigate the IRS maze, so you don’t have to, and you can sleep at night. We have former clients who have told us after we started helping them, they felt at peace for the first time since their tax problems began. You don’t have to face the IRS alone.
Save The Tax Returns and Your Documents
You may think the tax year is over, but the final curtain does not fall for a full 36 months for the IRS. In most cases, the IRS will have up to three years to question the figures you reported on your tax return or otherwise challenge the information you provided. For this reason, it is generally a good idea to keep your old tax returns for a minimum of three years. However, as discussed above, there are other instances where you need both your tax returns and your proof for expenses and deductions much longer. Don’t forget about those documents you need to keep forever.
Pay Stubs and W-2 Forms
As with the tax returns themselves, it is generally a good idea to keep your W-2 forms for a minimum of three years. If you received 1099 forms, save them too. This will provide you with the documentation you need should the IRS find a discrepancy between the amount of income you reported to the IRS and the figures your employer sent to the IRS.
It is also a good idea to retain at least your year-end pay stubs, not only to help reconcile them with the W-2 forms but also for other forms of income documentation. If you are applying for a mortgage, for instance, the lender may ask to see several years worth of tax returns, pay stubs and other income documents, and having them on hand will make the application process faster and easier.
Income and Dividend Forms
The IRS looks at all of the income you report when you complete and submit your tax returns, but the IRS does not just take your word for the accuracy of those figures. Instead, the IRS uses sophisticated matching programs to compare the amount of income you reported from various sources with what they receive from third-party sources.
Those third-party sources could include your bank and credit union, your brokerage firms and mutual fund companies, and any other places that provide you with income. Therefore, it is a good idea to hold onto any income-related forms you receive for at least three years, and possibly longer if you run your own business or earn income from gig work or freelancing.
Once again, these income documents can do double duty, serving as a backup if the IRS questions the numbers on your tax return and giving you the information lenders and others might need down the road. If you store these documents electronically, you will not even need to worry about buying a file cabinet, so there is no reason not to keep them around.
Filing taxes can be a stressful experience, but the difficulty does not end when your return is filed. Even after that return has been filed and accepted, the IRS could still question or challenge your numbers, and that is why it is so important to retain the backup documentation until the challenge window has passed. Now that you know what to retain and for how long, you can rest a little easier when tax time rolls around.
If you run into tax trouble or the IRS states you owe back taxes, reach out to our law firm for a confidential consultation to fully explain all of your options to resolve your tax problem permanently.
Key Things to Look for in a Tax Relief Firm
No one wants to get on the wrong side of the IRS, yet that is where millions of taxpayers find themselves each and every year. As enforcement efforts ramp up at the IRS, the number of letters and communications landing in mailboxes is continuing to increase and one of them could land in your mailbox.
If you do receive a notice from the IRS, it is important to act fast, especially if you cannot afford to pay what the IRS says you owe. You may be tempted to do nothing or ignore the situation, but every day you wait will just make an already bad situation that much worse.
The good news is you may not have to pay what the IRS says you owe! There are a number of programs designed to give taxpayers relief, in many cases allowing them to settle their tax debts for much less. You also may be able to contest the amount it claims you owe. But before you can enjoy financial relief, you need to find the right partner, and here are some key things you should consider.
The Right Tax Relief and IRS Negotiation Experience.
When you hire a tax relief law firm, you will be hiring a team that focuses on tax relief. It is important that the person who works on your case will be up to the task. It is important to look for specific areas of knowledge and experience. There are all kinds of lawyers. There are also CPAs and Enrolled Agents. They must not just be a lawyer, CPA, or Enrolled agent, they need to be someone who deals with these types of problems all day long. A generalist is not who you need. How much of their typical workday do they work only on these types of problems - tax relief?
The best tax relief law firms are not necessarily huge firms; some of the best are small firms with extensive experience. But no matter what the size of the firm, the tax resolution focus of the person working on your case is what matters the most. We don’t do divorces, auto accidents, or most everything else. We focus on tax resolution. Whoever you hire should, too.
Compassion and Understanding
Dealing with the IRS is not just a financial problem; it is an emotional one as well. Getting a letter from the IRS is bound to be an upsetting and unsettling experience, and working with a compassionate and caring tax law firm can help a lot.
You should not, of course, sacrifice knowledge and capability for compassion, but there is no reason you cannot have the best of both worlds. Look for someone who cares about you and your situation as you interview lawyers and tax relief firms and choose the one you feel best about working with.
Recent IRS Success Stories
The IRS is a huge agency, and the tax code is endlessly complex. That enormous complexity and ever-growing structure means that past experience may no longer be relevant, so look for recent experience of people who know the firm. A good place to look is at the Google Reviews of the firm.
Chances are if the people who wrote the review had a good experience, the professionals in that firm know what they’re doing which increases the possibility of a favorable outcome. Working with these lawyers can give you peace of mind and make it easier for you to resolve your tax problem.
Getting a letter from the IRS can be a scary experience, but it does not have to be the end of the world. You do not have to suffer financial devastation or go bankrupt to settle the debt you owe. Now that you know how to find a great tax relief partner, you no longer have to live in fear of your next trip to the mailbox.
Do You Owe Back Taxes? Take These Steps to Protect Yourself and Your Finances
Few things are as frightening as opening the mailbox and finding a letter from the IRS, especially when you know you owe them money! The much-feared IRS does not contact taxpayers just to say hello. It’s not known for being kind, gentle, and understanding. Receiving communication from them is not likely to be good news.
When your heart stops pounding, and you get the courage to open the letter, you get another shock. The IRS says you owe a lot of money. It’s an amount you cannot possibly afford. So what do you do, and how do you react?
The steps you take next could make all the difference. Here are some immediate actions you need to take right away.
Step #1 - Stop Panicking, Take Action
If you owe back taxes, our firm can help negotiate with the IRS for a payment plan or to settle your tax debt for a lower amount. Call us today. Our law firm can navigate the IRS maze so that you stop worrying and not have to face them all alone.
If you think you don’t owe them, you need to make a case for why you think the assessed taxes are wrong. You will need to back it up with proper documentation and proof. Sometimes, the letter you received from the IRS can be a result of a discrepancy, meaning there is a mismatch between what was reported on your return and the figures the IRS received through other means. There could be many reasons for this discrepancy. There could be an innocent and inexpensive explanation and resolution.
Getting a letter from the IRS is not fun, but it is not the end of the world either. Even if you owe the taxes the IRS says you do, you may be able to negotiate a payment plan or if appropriate an offer in compromise - a negotiated settlement, sometimes a much lower amount. Getting professional legal help can make a big difference.
Step #2 - Find the Tax Return in Question
The communication you received from the IRS will reference a specific tax year, so finding and reviewing that return as quickly as possible is important. Hopefully, you have retained records that include your recent tax returns, either in paper or electronic form. If not, you can request a copy from the IRS or contact your tax preparer.
Once you have your tax return in hand, you can review it carefully, looking for the discrepancies in question and seeking out your backup information. The problem could be something like a capital gain you forgot to report or a transposed number as you were entering your income information. Gather all the information and have it ready to bring to your appointment with a tax lawyer.
Step #3 - Do Your Own Calculations
Now that you have your tax return and your backup documentation available, it is time to do some number crunching. This process can be a long and frustrating. We guide our clients through this process when they work with us. The clock is ticking, and interest and penalties may continue to accumulate. Therefore, don’t wait too long to respond.
There should be a deadline listed on the form you received from the IRS. Be sure to check it and make sure you can respond by the due date. Do not forget to allow time for mailing and delivery, even if you plan to send the documents overnight.
Step #4 - Don’t Contact The IRS Directly, Contact Our Law Firm And Get The Protection You Need
The IRS is not on your side, their primary goal is to collect the taxes they believe you owe. The IRS has a number of programs in place to lower the amount owed or for payment plans. However, their job is to collect money, not to represent you. Don’t confuse them being professional or polite with them advocating for you and helping you determine what is best for you in light of all of your circumstances. Remember, anything you say to the IRS can and will be used against you.
By seeking the services of a law firm like ours that focuses on tax resolution, you will gain access to a world of knowledge, including information about programs that could save you thousands of dollars and get you back on the good side of the IRS. Also, you won’t be facing the IRS all along. The sooner you contact our law firm the better off you will be.
Dealing with the IRS is rarely a pleasant thing to do, but ignoring a tax due notice will not make it go away. Delaying will just make a bad situation even worse. So, it is important to act quickly. The good news is this law firm exists for this very purpose. We help people take control of their tax situation so that their future is not ruined. You can resolve your tax debt without sacrificing the rest of your entire future - the rest of your financial life. We help people get their life back from the IRS!
How to Turn Your Side Hustle Into a Massive Tax Deduction
If you took on a side hustle last year to make ends meet and earn some extra cash, you might have found an unexpected surprise when you filed your taxes. If you did not prepare carefully, you probably ended up with a big tax bill for your troubles, possibly with penalties and interest added to your tax bill.
Given the unpleasant surprises of the past, you may be resigned to a life of higher taxes, all courtesy of the very side hustle you thought would help you gain financial freedom. But before you put away your driving gloves and give up on ride-sharing and grocery delivery, you might want to take a second look at your situation.
With the right planning and preparation, your side hustle could actually lower your tax bill, giving you an even bigger reason to keep driving, door dashing, and doing whatever it takes to make ends meet. Here are some key ways to make your side hustle pay off come tax time.
Note: If you fall behind on filing your taxes or owe back taxes to the IRS, you’re not alone and we can help. Reach out to our tax resolution law firm and we’ll help you file late tax returns and negotiate with the IRS if you owe back taxes.
Start By Estimating What You Expect to Earn
It can be difficult to estimate how much you might earn from your side hustle, especially if the time you devote to it and the amount you make varies week to week. Even so, it is important to estimate your income, not only to plan for your deductions but to make advance tax payments as well.
If you expect to earn more than $1,000 from your side hustle, you should strongly consider making quarterly tax payments to the IRS. If you fail to pay ahead, you could end up with a tax penalty when you file, and possibly interest and other charges as well. If you end up overpaying what you owe, you will receive a refund when you file your taxes.
You can start estimating your earnings by looking at how much you made last year. To fine tune the figure even more, you can look at your monthly earnings to date and annualize that figure to determine how much you could earn for the entire year.
Consider a Health Savings Account
If you have a health savings account, either through your employer or purchased on your own, you may be eligible for a health savings account, and opening one could significantly reduce your taxable income, so you can keep more of your side hustle money.
In addition to the tax savings, a health savings account can help you pay for medical expenses, both expected ones and costs that would otherwise have drained your emergency fund. Since the money you put into an HSA is fully tax deductible if you are eligible for one, this simple step can lower your tax bill quite a bit.
Open a Self-Employed Retirement Plan
If you have a side hustle, even on a part-time basis, you are considered self-employed, and that means you can open a retirement plan designed for self-employed individuals. The type of account you can open, and the amount you can contribute, will be dictated by the type of business structure and your earnings, but many of these retirement plans are quite generous in their contribution limits.
If your side hustle is truly a sideline and you have a full-time job with a traditional 401(k) plan, you may be eligible for a SEP-IRA, a unique form of account designed specifically for small business owners and the self-employed. If your side hustle has gone full time, you may want to look at a solo 401(k), a retirement plan that offers high contribution limits and an enormous potential for tax savings. You will need to apply for an employer identification number (EIN) to open this type of 401(k), but you can get that number free from the IRS.
Take Advantage of Your Deductions
Having a side hustle gives you a chance to tax advantage of certain deductions, and using those deductions could significantly reduce your taxable income and boost the size of your refund.
If you run a business out of your home, for instance, you may be eligible for the home office deduction, and that will entitle you to write off part of your mortgage, utilities and other costs. You can also take a standard home office deduction based on the square footage of your dedicated workspace and the size of your home. (Remember to be eligible for the home office deduction, the home office can only be used for your business. No personal use by you or anyone else in the family.)
In addition to those deductions, you may be able to write off things like office supplies, the cost of internet access and phone service and automotive expenses if you use your car as part of your side hustle or full time business. You should always check with a tax professional before claiming these deductions, as every individual situation is unique.
Side hustles are becoming more common, and that is good news for many wallets. But when tax time rolls around, those partially self-employed individuals will need to do some serious planning to keep their bills in check, including following the steps outlined above.
Life as a freelancer or gig worker can be wonderful, but it’s not uncommon to see self-employed taxpayers land in trouble with the IRS and owing back taxes.
If you do run into tax trouble, reach out to our tax resolution law firm and we’ll schedule a confidential consultation to explain your options in full to permanently resolve your tax problem.
5 Things That Can Unexpectedly Raise Your Taxes
Proper tax planning is a year-round proposition. You cannot afford to wait until April to start planning your taxes and assessing your tax liability.
Knowing which factors can raise your taxes is one of the best ways to keep more money in your pocket. These five factors can unexpectedly raise your taxes owed at the end of the year.
Note: If you owe back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution legal team can navigate the IRS maze so that you have nothing to worry about.
#1 - Cashing in Your Retirement Plan
There are many reasons not to cash in your retirement plan early, but the tax penalty is one of the biggest ones. If you take the proceeds from your 401(k) plan in cash instead of rolling it over into an IRA, you will have to pay taxes on the money you withdraw. Even worse, you will be subject to a 10 percent penalty unless certain exceptions apply. By the time you are done, you could lose up to half your hard-earned retirement plan to taxes and penalties. You will also lose the opportunity for that money to compound tax free while it’s in your retirement plan. Think twice before cashing in the money in your retirement plan.
#2 - Working as a Freelancer
Working for yourself is great, but it can trigger a tax nightmare. Freelancers and other self-employed workers are subject to the self-employment tax, which represents the combined employer and employee share of the Medicare and Social Security tax. That tax hit can be substantial, especially if you plan to fail to plan for it and set money aside.
#3 - Failing to Take Your RMD
You cannot keep retirement funds in your account indefinitely. The law has changed. Previously, you are required to start pulling money from your IRA and workplace retirement plans when you turned 70. However, the law was changed and now if your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72. Warning: if you fail to make that required minimum distribution (RMD), you could face a hefty tax penalty. The penalty for failing to take the RMD can be substantial.
#4 - Skipping Your IRA Contribution
If you are used to making an annual IRA contribution, skipping that contribution could cost you money. Before you skip your IRA contribution, take the time to run the numbers and see how the decision will affect your tax bill.
#5 - Paying Off the Mortgage
Paying off the house can be very freeing, but it can also raise your taxes. Mortgage interest is deductible if you itemize your deductions, and losing that deduction could leave you owing more to the IRS. That may not be a reason to keep a mortgage, but it can be an important consideration. Remember that the changes in standard deduction has meant that many people who previously itemized deductions under the current tax law now used the standard deduction. The point here is you should plan and run the numbers.
Owe Back Taxes?
If you know you’ll have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed.
IRS IS DROPPING THE HAMMER ON PEOPLE WHO OWE TAXES
The IRS is dropping the hammer. The IRS is sending out millions of Notices of Intent to Levy using Notice LT 11 to taxpayers who have not paid their taxes. While it may look and feel like it is no big deal – BEWARE IT IS! This notice is the last step that IRS takes just before taking money from your bank account, garnishing your wages, or seizing property.
If you have just received IRS Notice LT11, YOU ARE ABOUT TO LOSE the right to contest the amount owed and the right to a hearing!! Therefore, YOU NEED TO TAKE IMMEDIATE ACTION. YOU HAVE 30 DAYS FROM THE DATE OF THE LETTER TO REQUEST A HEARING!!!
You have a legal right to a hearing before the IRS levies – takes money from your bank account or garnishes your wages. However, if you do not request a hearing within the deadline for doing so, you lose your legal right to contest it. For example, if you have a payment that you made that is not credited, you should request a hearing. If the amount the IRS is claiming you owe is not correct, you should request a hearing. If you need to work out a payment plan, you should request a hearing.
Here’s some background about what is going on. During the pandemic, you were told, “We are all in this together.” People lost jobs, and others were told to go home; they couldn’t work. Everyone was sheltering in place to flatten the curve of COVID-19.
Congress passed special legislation to provide money to taxpayers to get through to the other side of the pandemic. Instead of actively seizing bank accounts and aggressively collecting, IRS sent out letters reminding people what they owed and asked them to pay their tax bills. Congress didn’t pass this legislation to help people during the pandemic pay their taxes. It was to help you survive while you didn’t have any income. Many people had to spend money they were going to pay their taxes with to survive while they didn’t have income.
So, now the IRS is unleashing itself on you and other Americans. Instead of “we are all in this together,” it’s let’s trick people out of their right to a hearing. Why am I saying that? It’s because they buried the information about your right to a hearing on page two of Notice LT11 toward the bottom of the page. Wouldn’t you tell someone on page one what to do to protect their rights if we are all in this together? I sure would, and I bet you would, too.
In situations like this, having a tax professional whose focus is on tax resolution can make a big difference. If you get an IRS Notice LT11, BEWARE! You are about to lose important legal rights.
Call us if you have a tax problem. We are here to help you get your life back from the IRS!