In medicine, the adage “prevention is always better than cure” is nearly universal. Rather than curing every illness that the human body acquires, medical professionals should educate the citizens on how to live healthily so that any sickness will not grip their organ systems in the first place. Coincidentally, this dogma does not only apply to diabetes or hypertension. It also touches the topic of paying properly one’s taxes.
No one wants a run- in with the IRS. Surely, everyone would avoid it completely as much as possible. Banking on that thought, certain measures can be taken—and they are quite simple, thankfully. For instance, it doesn’t take a lot to pay attention to one’s Form 1099. If the taxpayer gets one of these forms in the mail, then they better open and read it.
Another thing to consider is that everything has tax consequences. Leases, purchase agreements, settlement agreements, employment agreements, independent contractor agreements, and other types of arrangements have taxes written all over them. They don’t need to be large transactions to be noteworthy. It’s best always to consider taxes before signing anything.
Finally, one of the most important steps to take but the least emphasized and the least done of all is the keeping of records. Horrible record keeping is the number one cause of problems with the IRS. It takes a little bit of time to get used to since few people like to keep records and documents, but the benefits severely outweigh the inconveniences the practice causes.
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Tax planning involves analyzing one’s tax situation to estimate how much taxes to pay after accounting for income taxes, tax credits, and other deductions. By delaying doing so, the taxpayer risks committing mistakes that can land him in trouble with the IRS for wrong information or late filing. Tax planning can also reduce tax liabilities and maximize eligibility to contribute to retirement plans.
IRS tax lawyers have provided these tips in conducting tax planning:
Do it early
The general deadline for tax return filing and tax payment is on the 15th of April. Many people would rather prepare for it as the deadline approaches. But by cramming, there is a higher chance of miscalculation, overlooking crucial information, and inability to find missing documents.
While tax season is usually the start of the year until the aforementioned date, tax planning can be done year-round. All the tax documents of transactions and activities that are needed to be reported should be kept organized to ensure efficiency in preparing for the tax filing.
Adjust withholding for major life changes
Do not forget that big changes in life and status, including marriage, switching jobs, having a baby, and others should be reported to make sure that there is no lack or excess in the paid withholding taxes.
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Upon marriage, spouses can opt to file a joint tax return with the IRS because of the benefits the filing status offers the couple. However, after both taxpayers have signed on the dotted line, they are jointly and individually liable for the tax they will incur, along with any additions to the tax, penalties, and interests.
Should the couple decide to divorce, the joint and several liabilities still hold, meaning that each of them will remain legally responsible for any amount required of them – even if only one spouse has earned all the income or claimed improper deductions or credits.
Under the tax code, however, there is a way for one of the spouse to be released from the liabilities of the joint tax return, he or she can apply for innocent spouse relief with the IRS. If the conditions are met, the claimant will be relieved of owed additional taxes caused by the failure of the other spouse to report his or her income properly.
Three conditions must be met to qualify for innocent spouse relief: the understatement of the tax should be attributed to erroneous items of the other partner; the claimant had no previous knowledge of the understatement; and it is proven to be unfair to hold the claimant reliable for the understatement.
If not all the requirements have been met, IRS also awards partial relief by removing or refunding the penalties or interests incurred due to a particular item on the income return.
If the innocent spouse does not qualify at all for the innocent spouse relief, he or she can instead file for separation of liability relief or equitable relief.
Founded in 2002, Tax Tiger is an authority in tax resolution. Its team of experts has helped countless hardworking individuals from tax-related problems and in working with the IRS. Learn more about the company’s services by visiting its official website.
Filing taxes for the first time can be overwhelming for a young professional who just got hired. In fact, the whole process can baffle even the most experienced ones. But before getting intimidated by the forms and the rules, new payers should plan and prepare well for their first tax season.
Before filing for taxes, an employee must have a copy of the W-2 form from their employers. The W-2 reflects their entire income along with federal and state income tax, Social Security, and Medicare deductions that can be considered as pre-tax deductions. On the other hand, independent contractors must file their 1099-MISC that shows their income without withheld taxes as they would need to file for self-employment tax.
Employees must have their tax folders with all these forms along with earning statements and additional income that can come in the form of interest, investment, and earnings. If the employees were hired straight out of college, it is best to reconcile taxes with their parents. Being a dependent of a taxpayer could qualify their parents to receive deductibles on their returns. Other deductibles to be considered are job search expenses, child and dependent care credit, and earned income tax credit.
To avoid being stunned by this important task, first-time employees must avoid procrastinating in order to accurately fill-up the form and avoid hassles during the actual submission.
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As the options for tax debt settlement have been diversified, different types of professionals can also be hired by taxpayers to address their concerns. However, the most well-known of these professionals are also those who have been in the business for decades: certified public accountants and enrolled agents. Below are the key differences between these two professionals:
Certified Public Accountants. CPAs are licensed by state boards of accountancy to deal with financial investments, accounting, planning, and tax preparations. CPAs have expertise in bookkeeping and recording income and tax returns as well as attesting an audit of one’s business deductions, income, and expenses.
However, not all CPAs specialize in taxation and some of them specialize in more than one service, so they are not always focused on tax preparations, for example. Being licensed only by the state where they took the board exam, CPAs are also not mandated to handle out-of-state returns. They can also only accommodate a limited number of tax cases within a specific period.
Enrolled Agents. Enrolled agents are specialists in federal tax planning, individual and business tax return preparations, and representation during an IRS audit meeting. EAs give pieces of advise and prepare comprehensive tax returns for individuals, business establishments, corporations, estates and other entities.
EAs can help taxpayers who have out-of-state returns, since they are granted by the federal government unlimited right to practice. They can also be hired in place of taxation attorneys to resolve IRS disputes. The latter professionals are known to command higher rates.
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The Federal Tax Lien is a public document filed by the Internal Revenue Service (IRS) to individuals with tax debts. It is a legal claim on an individual’s property, including real estate and financial assets, as security for unpaid tax obligations. A lien is filed when a taxpayer fails to fully pay the debt after receiving notification from the IRS.
A lien is a public record, which means it could be accessed by different credit reporting agencies and would eventually appear on one’s credit report. As a consequence, this could limit one’s ability to get credit and to apply for loans. A federal tax lien also attaches to the taxpayer’s assets, such as properties, securities, automobiles, and even retirement accounts and residences. If the taxpayer fails to settle his or her debt on time, the government has a legal right to seize all the aforementioned assets.
There a number of options for getting rid of a lien, including discharge of property, subordination, and withdrawal. These options are aimed towards reducing the adverse impacts of a tax lien for the best interest of both the government and the delinquent taxpayer. Although such options exist, it is best to avoid a lien altogether by filing and paying taxes in full and on time. The IRS also advises taxpayers not to ignore important notifications from the agency to avoid costly tax mistakes.
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Small businesses are challenging to run and maintain. With larger taxes and the need for urgent compliance, it seems as if there’s no end to the struggle. However, there are practical solutions for these seemingly unending tax problems that business owners can take note of.
Having a plan at the start of the year is helpful in keeping up with tax payment schedules. Even if the company is struggling with finances, preparations can be made in advance to prevent delayed payments and penalties. Planning may take days, but once important concerns have been scheduled, it takes an enormous burden off the owner and employees.
Seek professional help
One of the downsides of living in the internet era is that most people become too dependent on their own skills. When it comes to matters regarding taxes, government, and legal concerns, it is best to seek the expertise of professionals. Especially when it comes to taxes. When it comes to computing taxes, business owners shouldn’t just depend on completing the spreadsheet on their own. To ensure that they’re not violating rules, the help of an accountant or an auditor is necessary.
This step must be prioritized. Even if the funds are not yet complete for a small business to fully pay for the taxes, at least they have been spared from having to shed 25 percent of their payment as a penalty for late filing. A reminder: Filing an extension is not for the payment but for filing the tax return. If a company pays late even with an approved extension for filing, it doesn’t shield them from the extra costs.
As long as the managers and the employees know the right policies, it is possible for small businesses to thrive despite the seemingly unending taxes. When a task seems to be too much, there are always dedicated tax professionals who can shed light on the issues.
Tax Tiger is home to a number of reputable tax lawyers and has a long-standing record of dealing with the IRS to minimize large debts through compromise or installment programs that save their hardworking clients time and money. The company practices a faith-based approach to ensure highly ethical and quality services. To know more about the services the firm offers, visit its official website.