Are you still struggling with tax debt?

When you originally signed up for the Taxing Times email newsletter, you most likely did so because you were looking for information on reducing your tax liabilities and fighting against IRS collections actions.

I do hope that the advice and tips that I share in the newsletter and in the blog have been helpful to you in working out a solution to your tax debts. However, if you are still struggling under the burden of IRS Collections, and are in a position where hiring full service representation simply isn’t financially feasible to you, I’d like to make you an offer of assistance that you’re simply not going find anywhere else.

I recently put together a comprehensive “Do It Yourself Kit” that includes the instructions for negotiating your own tax relief. This kit, which I’m tentatively referring to as the Personal Tax Resolution Toolkit, contains not only instructions for negotiating your tax resolution, but also includes little tidbits of “tribal knowledge” gained through years of working with the IRS that most people simply don’t know.

On top of that, the kit includes the necessary forms, template letters, and other materials that you’ll need in order to represent yourself in front of the IRS.

But wait, there’s more! 🙂

Since I want to get this kit into the hands of a few real life customers in order to have them put it to the test for themselves, I’ve decided to add in some additional personal guidance and assistance from myself in order to help out with their case.

Now as you probably already know, I take on very few new clients, and heavily guard my time, especially via the telephone. However, for the next few days only, I’m going to include some personal assistance as a bonus for the first few Personal Tax Resolution Toolkit customers.

What kind of personal guidance am I including? For the rest of this week, I’m basically giving away the store:

  • A 30-minute telephone consultation with me to review your situation and advise you on a course of action (worth $125)
  • Power of Attorney Service (worth $195): I will become your Power of Attorney with the IRS and monitor your IRS account activity.
  • IRS Notice Advisement (worth $495/year): Advise you on what IRS notices mean and what you need to do about them, as they arrive.
  • Investigation of Liability (most firms charge $500 to $1,000 for this service): Obtain and analyse your IRS account transcripts, and advise you as to what you need to do to correct them and what options may be available to you, such as Appeals actions.
  • 60 days of unlimited email access to me as you work through your tax situation (value: at least $2,500, if not more)

Again, this is only going to last for the next few days, and I can absolutely guarantee with 100% certainty that I’m never going to make this offer again, especially for such-a-low-price-it’s-almost-free. But, I want to get the toolkit into a few people’s hands so they can work with it and give me feedback on the system from the perspective of somebody that is not a tax professional.

To take advantage of this offer, or if you know somebody that could use this level of assistance right with an IRS tax debt, please visit the Personal Tax Resolution Toolkit page.

This offer will stand through Friday evening or the first five customers, whichever comes first, at which point the free access to a licensed tax professional will be removed from the offer.

If you’re still struggling with an IRS tax liability, take advantage of me now while I’ve got some free time, and save a ton of money over traditional tax representation.

2013 Tax Numbers Announced, Plus 2013 Tax Planning Advice

A variety of numbers that are important for 2013 tax planning were recently released by the Internal Revenue Service and Social Security Administration.

First, let’s talk retirement accounts. In 2013, maximum 401(k) contributions from your own paycheck will be capped at $17,500 for the year, an increase of $500 over 2012. For folks 50 and older, the “catch-up” limit remains the same, at $5,500. Personal IRA contributions will be limited to $5,500 for those under 50, and $6,500 for those age 50 and older. For SIMPLE accounts, the maximum contribution increases to $12,000, with a $2,500 catch-up limit for those 50 and over.

While elimination of the Social Security taxable wage limit is one of the proposals on the table in Washington, D.C., the inflation adjusted cap for 2013 is currently slated to be $113,700, up from $110,100 for 2012. This is the maximum salary level per year per person on which Social Security taxes are charged. Your wages above that amount are not subject to that particular tax. Expect this to be a hotly debated item during the next Congressional session.

Also on the Social Security front, retirees that have not yet reached full retirement age for their birthdate can earn up to $15,120 in 2013 from employment without losing any Social Security benefits.

If you provide cash gifts to others, you’re in luck in 2013: The annual gift tax exclusion has increased to $14,000 for 2013. Do note, however, that this is als a hotly contested item, and may be on the retroactive chopping block for 2013.

Lastly, Health Savings Account (HSA) contribution limits will increase to $3,250 for individuals and $6,450 for families next year.

In case you didn’t notice, the makeup of Congress and the White House had zero significant change in this year’s election. The Obama Administration may see some slight personnel changes, but control of the House remains with the GOP and the Senate with the Democrats, with only a few new faces coming in. Neither party, in neither house, saw a significant turnover in elected representatives as many had predicted.

Given this, and the pending fiscal cliff, I am advising clients to take full advantage of every tax break they can for 2012. Sometimes, it is best to defer certain taxable actions until the following year. However, given the likely continued gridlock in Washington, I personally predict that 2013 will be a very bad year in regards to tax deductions and tax credits that many take for granted.

If you have capital gains items that you can lock in your profits on now, and pay the current reduced tax rate on, I would encourage you to take your profits now and pay the tax in 2012. Similarly, if you have been considering deferring compensation, I would generally advise against it, as the Obama Administration and Senate Democrats are serious about pushing through higher marginal tax rates. I would also encourage you to take any green energy tax credits and education tax breaks that you can in 2012, as they probably won’t exist in 2013.

Looking into the magic 8-ball, I also anticipate reduced limits on charitable contributions and the home mortgage interest deduction. In fact, many Congress-critters want to eliminate the home mortgage interest deduction entirely, or at least implement a drastic phaseout. You should also be prepared for greater Alternative Minimum Tax (AMT) hits, even for those earning less than $75,000 per year. Also be ready for a higher AGI threshold for deducting medical expenses, and look for little things like the $250 deduction for teachers spending their own money on classroom supplies to go away.

In my opinion, 2013 is set to be one of the most “interesting” years in the field of U.S. tax regulation since 1986, when the entire tax code received a major overhaul. While I say “interesting” as a tax practitioner from an academic standpoint, that can be translated to “very, very bad” for most middle and upper income taxpayers. I expect that anybody earning more than about $35k or $40k per year will feel the effects of 2013 tax law changes directly in the wallet, despite political rhetoric to the contrary.

And just for the record, I would be writing these exact same words even if Romney had been elected and the GOP had taken control of the Senate. I belong to no political party, and support none. The current U.S. national debt is over $16 trillion, and increased by $1.1 trillion in FY 2011-12. In the first full month of FY 2012-13, which was the month of October, the Federal government already had to go another $200 billion in the hole.

Currently, mandatory spending (which includes interest payments on the debt and legally obligated entitlement programs), accounts for more monthly and annual spending than the U.S. government takes in. In other words, all Federal discretionary spending (which includes defense, education, etc.) is all on borrowed money. The only way to fix the problem is to take in more tax revenue and legislatively change the underlying laws that dictate mandatory spending.

Therefore, it is a mathematical impossibility for any administration, no matter which party is in charge, to both cut taxes and balance the budget. It’s very basic arithmetic, it simply can’t happen. To get anywhere near close to a balanced budget, social programs will require deep cuts in benefits, tax rates must increase, and tax credits and deductions must go away. All three of these moves basically require political suicide on the part of all Federal branches, in both parties.

Therefore, it’s not going to happen, and I anticipate that the next two years until the next Congressional election cycle will simply yield more gridlock, increasing debts, occasional Federal government shutdowns, continued quantitative easing (printing of money by the Treasury, which decreases the value of the dollar), more mudslinging and blame, and everything else we’ve been seeing for the last two years.

Unfortunately, that means many tax breaks will go away — and all of us will have to pay the price. Expect your tax burden to increase in 2013, simply by Congress NOT acting, and plan accordingly.

Penalty Abatement Statements – A Humorous Example

Taxpayers have the right to request relief from penalties assessed by the Internal Revenue Service. The IRS sets very specific criteria for the granting of penalty abatements. It can be very difficult to demonstrate that a taxpayer’s circumstances meet the criteria for penalty relief. Most of the time, we will request a written statement from the taxpayer explaining the circumstances that lead to the accrual of their tax liability, and then use that to create our own penalty abatement request that fits to one of the IRS criterion, cites case law, etc.

Most of the time, taxpayer’s have some reason for not paying their taxes that ties back to not having the money to do so. Lack of funds does not meet IRS reasonable cause criteria, but the circumstances behind the lack of funds sometimes can be reasonable cause.

Occasionally, the taxpayer’s explanation for failing to pay their taxes doesn’t leave us with a lot to work with. On rare occasions, we receive an explanation that is quite humorous.

This example is from a taxpayer that elected to continue NOT paying his taxes because it was financially convenient. With a struggling business, a divorce, and alimony and child support to pay, the taxpayer was experiencing financial hardship. He wrote:

I financed [business] shortfalls with credit card advances and soon I had unsupportable credit card debts and many other expenses…

As things started to turn around for the taxpayer, he continues:

In early 2001 I noticed that I somehow had enough money to pay my bills. Later, I discovered that I had inadvertently neglected to call in the 941 payment [for fourth quarter], even though the check had been generated by the accounting program. I was consternated but simply didn’t have the money to make good.

This is a common reason as to why people miss a Federal Tax Deposit, often several in a row. They then try to make it up when they can. However, in this case:

I expected a notice from the IRS daily, but nothing happened and when it was time for the next 941 payment I thought, “This is the kind of tax relief I need right now.” As an expedience, I didn’t pay the 941’s for the next several months and used the respite to get back on my feet financially.

Doing this enabled the taxpayer to get current with his vendors, credit cards, etc. He skipped his payroll tax payments for 7 months, then started making them again. By this time, he was on a debt management plan for the rest of his debt, and the business was doing better. However, the taxpayer recognized that this course of action had consequences attached.

Again, the initial non-payment was an unintentional oversight. However, it was so useful in preventing bankruptcy, staying in business, and becoming solvent that I didn’t make another payment for 7 months. By that time I was in good shape and haven’t had serious problems since. I’m grateful to Uncle Sam for the loan, though it is a little like borrowing from the Mafia. However, I’m ready and able to make restitution.

Needless to say, this was an exceptionally difficult penalty abatement for us to craft, and we obviously did not submit this in the form submitted to us by the client. This is actually still an active case, and we are awaiting IRS review of our actual abatement request.

This example, while humorous, illustrates how taxpayers can get in further trouble with the IRS after an initially unintentional oversight. It also illustrates the choices that business owners are having to make in order to stay in business.

5 Simple Steps To Achieving Mitt Romney’s Tax Rate

Republican presidential candidate Mitt Romney has been getting blasted for months about the fact this effective tax rate is so incredibly low. As an Enrolled Agent, I find the discussion surrounding Romney’s tax situation to be particularly interesting, because there isn’t a single taxpayer on the face of the Earth that personally wants to pay more taxes than they have to. If such a strange person does exist, there is no government that won’t happily cash your check (in fact, the U.S. government happily accepts credit cards for donations).

I’d really like to get on the phone with all these reporters and news anchors blasting Romney for his tax reduction strategies. I’d bet $100 that you can’t find one that would, themselves, personally agree to pay more taxes than they need to. Yet, they will happily ridicule somebody else for doing so.

Actually, I need to back up, because there is actually one person I know of that voluntarily pays more taxes than he’s required to. Guess who that is? Mitt Romney.

That’s right. In order to keep a campaign promise earlier this year stating that he has paid at least 13% in taxes each of the past 10 years, Mitt Romney voluntarily failed to claim $1.75 million in charitable contributions on his 2011 Form 1040. In other words, he only deducted $2.25 million of the total $4 million he actually donated to non-profits. If he had claimed the full deduction, his 2011 effective tax rate would only have been 12%.

Mitt Romney’s strategy for only paying an effective tax rate in the low teens is perfectly legal.

The Internal Revenue Code requires every American citizen, at home or abroad, to pay taxes on all income, from whatever source derived, whether that money is made in America, or overseas. The law requires everybody to pay their mandatory tax amount, and not a single penny more. The tax laws are the tax laws, and the law is the same for every citizen. Just because you are rich does not magically change the tax laws (just ask Wesley Snipes, serving three years for tax fraud).

Some people complain that the tax code favors the wealthy. This simply isn’t true. The tax code provides equal opportunity for all. Equal opportunity to minimize, but also equal opportunity to get screwed.

What does this mean, and and how can you take advantage of it?

First of all, realize that Congress typically makes thousands of changes to the Federal tax code each and every year. Just about every bill passed has some minor tweak to the tax code associated with it.

Second, understand that the tax code is used by the government as a tool for social engineering and economic stimulus. This isn’t a secret — it’s a well documented fact. Certain elements of the tax code exist for the sole purpose of wealth redistribution, such as the Child Tax Credit and Earned Income Credit, both of which are social welfare programs that the government simply chose to implement via the income tax system. Other elements of the tax code exist in order to encourage small business investment, such as tax credits for research and development and domestic production activities. Other pieces of the tax code are intended to attempt to create jobs, such as payroll tax credits for hiring veterans or displaced workers.

The secret behind Mitt Romney paying such a low effective tax rate has to do with his income sources. As I write this, I’m looking at Romney’s 2011 Form 1040, page 1. This return lists the following major income sources and amounts:

  • $4.1 million in taxable interest
  • $3.2 million in taxable dividends
  • $10.8 million in capital gains
  • $2.8 million partnership and trust income

Romney’s tax on all this income isn’t figured using the regular tax tables, and not just because the numbers don’t go that high. Currently, his interest and partnership/trust income is taxed at normal income tax rates, but the $14 million in dividends and capital gains are taxed at much lower rates, currently only 15%.

That 15% tax rate is scheduled to expire at the end of 2012, as part of the expiring Bush tax cuts. However, the U.S. has a long history of creating special reduced tax rates for dividends, capital gains, and other forms of investment income, and there is a perfectly valid reason for doing so: Investment income derives from putting your money to work within the company, which generally creates jobs.

Economic investment has long been the primary source of jobs within modern economies. Without investment, most economies would grind to a screeching halt (been to Greece lately?). In order to encourage people with money to put that money to work within the economy, rather than just saving it under a mattress, governments offer incentives for investment. One such incentive is a reduced tax rate on the investment earnings. Those investments stimulate the economy, create jobs, and keep the economic engine churning for the rest of us. It’s a very critical component of keeping a modern economy operating.

When I flip to page 2 of Romney’s 1040, I see $5.7 million in itemized deductions. Looking at his Schedule A, I can see $4 million in charitable donations alone, of which he only claimed $2.25 million. He paid $2.6 million in tithing to his church. He also deducted $1.5 million in state and local taxes he paid.

Romney could have claimed the entire $4 million in charitable donations. I also see that he claimed absolutely zero business expenses on his Schedule C, and thus paid income tax and self-employment taxes both on every dime of speaking fees he collected.

I’m not going to review every line of this 104 page tax return. What becomes readily apparent, however, is that a tax minimization strategy is possible for everybody, no matter how much or how little your income. I’ll recap the “Mitt Tax Reduction Strategy” in a short list of steps, in case you didn’t pick them up through the course of this article:

Step 1: Own and operate your own small business.
Step 2: Invest in dividend-generating securities.
Step 3: Invest in activities that will produce capital gains.
Step 4: Invest in tax-free investments, such as municipal bonds.
Step 5: Donate a large percentage of your income to non-profit organizations.

Not only does this strategy work for rich people, it works for working class stiffs like us, also. If you’re self-employed, you get to write off an amazing array of things that people that work for other companies can’t, including deductions for business use of your home and your vehicle. Everybody can invest in securities that provide tax-free interest income, generate dividends, and produce capital gains. And everybody can donate to their favorite worthy causes.

Even people earning $30,000 per year can make this sort of thing happen: I’ve not only seen it with clients, I’ve done in myself.

No matter how much or how little money you make, the tax code can either work for you, or against you – the choice is really up to you. Prudent investment management, careful personal financial management, and proactive tax planning can all work together together to drastically reduce your effective tax rate, also.

To schedule a tax planning appointment, feel free to contact me.

Where did your tax debt come from?

When I look back on how I ended up nearly 100 pounds overweight a few years ago, I really can’t identify how it happened. I definitely remember hitting 180 lbs and thinking, “Hmmm, I’ve gained a little since I left the Navy.” But when did that become 260 pounds? I honestly don’t remember.

Tax debt can be very similar, especially payroll tax liabilities for small business owners. For individuals, it’s a bit more shocking, since tax time is generally only once per year, rather than four (or even more). The reality, however, is that your tax liabilities didn’t just suddenly appear out of nowhere, just like all my extra weight didn’t suddenly appear while I slept one night.

For the vast majority of taxpayers, both individuals and businesses alike, their very first tax bill stems from a series of events.

For individuals, it can be that you simply don’t pay attention to your tax situation throughout the year (hint: you should!). You think of your taxes as a once a year affair, rather than taking a proactive approach to regular tax planning. Perhaps you got a bonus, a raise, or a gambling win at some point in the year that boosted your overall income for the year into a higher tax bracket, and didn’t adjust your withholding at that time to compensate. Or perhaps you had a large debt forgiven or took money out of an IRA early, and didn’t plan for the tax consequences. Failing to take into consideration a significant life change, such as no longer being a homeowner or losing an exemption and tax credits because of a child growing too old to claim, can also have a major impact on your tax situation.

For businesses, it can start with a rough month, and simply not having the cash laying around on the 15th to make the payroll tax deposit for last month’s payroll. Essentially, it becomes a matter of convenience to skip that Federal Tax Deposit one time. Well, in my experience, that one time becomes an expedience for the entire quarter, then two quarters, with no warning or anything from the IRS. Then, suddenly 8 straight quarters have gone by and you get a tax lien notice and a call from IRS Collections, not to mention you are suddenly informed of the massive penalties, which can double the size of your initial tax debt.

Whenever you have a “life event”, be sure to take into consideration the potential tax consequences. What is a life event? Anything to do with large asset acquisition or disposal (such as a home), anything to do with children, marriage, divorce, bankruptcy, foreclosure, job change, moving, or anything that drastically changes your bank account balance. If you are self-employed, there are even more definitions for a “life event”.

For business owners, don’t fall into the “it’s easier not to pay this month” trap, especially with payroll taxes. The long term consequences simply aren’t worth it. In fact, it’s cheaper to raid your personal retirement plan and pay the 10% early withdrawal penalty than it is to pay the penalties that add up for not paying payroll tax deposits. If you have a short-term cash crunch, it’s also better to put off paying OTHER bills, rather than the IRS. It’s simply cheaper to catch up on rent, utilities, vendors, and other business bills, rather than paying the IRS’ extortion-level penalties.

If your business is experiencing a longer term cash crunch than just one month, than you need to take a serious examination of your business. Cut costs wherever you can. If you have insufficient revenue coming in to cover the complete costs of maintaining an employee (their salary, benefits, worker’s comp, payroll taxes, etc.), then you need to start cutting hours, considering temporary layoffs, and letting some employees go entirely. Yes, it sucks to cut somebody’s hours or lay them off, but you’re running a business, so run it like one.

You should also look at ways to increase revenue. I do not discuss business growth and marketing on this particular blog, as it is not the place for it, but I do substantial marketing consulting and coaching for a number of businesses in various industries, and the most fundamental thing I tell each and every business I work with is this: As a business owner, you are first and foremost a marketing and sales professional, and a contractor, trucker, baker, childcare provider, or chef second. If you don’t embrace this concept, your business won’t survive, pure and simple, so invest the time and money into better marketing your products and services, and you will make more money.

If you take a proactive approach to tax planning, you will never have an unexpected tax liability. Discuss with your professional tax advisor any potential consequences of a life event. Business owners, keep your books up to date and be sure to review your financial statements every month. The vast majority of businesses that I have helped resolve tax problems for over the past four years kept their business records in a drawer, if at all, and failed to properly maintain accounting records (which is required by law, just for the record).

If you need assistance getting your books in order, setting up QuickBooks, selecting a payroll service, or need advice about the tax consequences of a personal life event, please contact me.

How the IRS views your cost of living

In general, the IRS appears to take a cynical view at people’s cost of living, and can be fairly judgmental about how we spend our money. This cynicism obviously increases dramatically the moment you have an outstanding tax debt.

Before delving into specifics, I’d like to make two points regarding the IRS personnel you’d normally be discussing your personal finances with. First, IRS field personnel such as Revenue Officers and Settlement (Appeals) Officers typically have higher salaries than the IRS National Standards for the areas in which they are assigned. In other words, even as public servants, they make more money than their own standards set for a middle class lifestyle.

Second, keep in mind that these people are public servants. In fact, most senior IRS personnel are lifetime bureaucrats, meaning that they have never had to work in the private sector. Some senior Revenue Officers, Revenue Agents (Auditors), and Settlement Officers have actually never worked a day in their lives outside of the government, and don’t even have finance or accounting backgrounds.

Combining these two things, you can see that it’s very possible that the IRS person you are explaining your finances to has an interesting view on the world: They’ve always made an above average salary, and lack any personal experience running a business or dealing with the reality of private sector employment. This skewed perspective becomes readily apparent in talking to senior IRS personnel if you’re a middle class taxpayer or “mom and pop” small business owner.

Now, with that said, let’s talk about the IRS National Standards. The government uses national and local cost of living data to establish norms for the cost of living across various categories. Some cost of living standards are the same for everybody, while others, such as housing and transportation, are adjusted by region.

These standards are based entirely on the government’s definition of a middle class existence. In other words, for purposes of determining how much of your income the IRS expects you to fork over in monthly payments on a tax debt, they only allow you to claim a middle class lifestyle.

It is not uncommon for me to have a conversation with a client where I’m explaining this, and they get frustrated. When you’re in IRS collections, they don’t like seeing that you’re making $1500 per month car payments on a Hummer and a Corvette, or have two people living in a 4200 square foot home. If you are used to a certain lifestyle, you may not quite understand why these things would piss off the government when you owe back taxes.

The main thing to remember is that the IRS National Standards are calculated from a middle class lifestyle standard. While you may consider yourself middle class, statistically you may in fact be upper-middle or even upper class. Keep in mind that the median household income in the US is about $52,000 per year. This means half of households make more, half of households make less. This number, by definition, represents middle class America, and is what the IRS National Standards are based on.

If you owe the IRS a substantial amount of money, and are living above the IRS National Standards, it is possible to negotiate up to a 12-month “stay of execution” against you with IRS Collections. This time period is designed to allow you to reduce your lifestyle to a middle class existence. This would include downsizing to a smaller home, selling cars, boats, and recreational vehicles, etc.

It wasn’t until March 2012 that the IRS finally allowed taxpayers to claim their minimum credit card and student loan payments as allowable expenses. At the same time, the IRS made a major change in how an Offer in Compromise is calculated, drastically reducing the amount they expect you to fork over in a reduced settlement situation. These changes have made literally hundreds of thousands of tax debtors now eligible for the OIC program that previously were not, so it’s worth looking into.

When it comes to discussing your standard of living and associated expenses with an IRS field agent, understand that you are both going to be frustrated, and for very different reasons. If you live a higher than middle class lifestyle, I would definitely suggest having a representative work on your behalf with the IRS, not only to avoid you frustration with these types of conversations, but also because a representative is going to be more knowledgeable regarding what expenses can be negotiated for inclusion with the IRS.

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 me.

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. 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. Feel free to email me back with a copy of your IRS notice attached and I’ll tell you what it means and what you need to do about it, in simple terms.

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.

Again, if you need help determining the estimated tax payments you should be making in order to avoid a big tax bill, along with penalties and interest in 2013, please get in touch with me and I’ll help you with that.

[Free Book] Get the best-selling tax resolution book…free

A few hours ago, I learned that Amazon has a nifty little feature in their Kindle publishing system for authors that lets us offer our books for zero cost during any 5 day period once per quarter.

My book, Tax Resolution Secrets is both the #1 and #2 best-selling tax resolution book on Amazon (#2 is the Kindle ebook edition, #1 is the paperback). In order to celebrate this little achievement, I’d like to do this 5-day free offer that Amazon allows authors to do.

So, starting today and running through Sunday, you can download the Kindle edition of Tax Resolution Secrets at absolutely no cost. You don’t even need to own a Kindle device in order to read it — there are Kindle apps for most smartphones, and even a Mac and Windows application as well.

If you’re in a position where you still owe tax debt, and simply can’t afford to hire professional representation, then please take advantage of this. Even if you can afford representation, or already have hired representation — still read this book. It outlines step-by-step what you can do yourself to resolve your tax problem, and will guide in what your representative SHOULD be doing for you if you have one.

The only thing I ask is that you please write a review of the book for me on Amazon. I’ll be working on the second edition here in a few months, and your feedback can help improve the book for everybody else.

To download the book, as well as submit a review, just visit Amazon’s page for Tax Resolution Secrets Kindle Edition.

If you need to set up a payment plan, release a wage garnishment, apply for an Offer in Compromise, release a lien, reduce your penalties, or anything else having to do with IRS Collections, then this book has a chapter for you. Please check it out, and then let me know what you think by writing a review on the Amazon page.