Often times, taxpayers first fail to file a return in a year when their circumstances changed or when the business is having cash flow problems. For either emotional or financial reasons, they failed to file a return. The reason might even be procrastination. Whatever the reason, things will only get worse in coming years when you worried that:
· filing would call attention to your situation?
· you could get the forms needed to prepare the earlier return?
· you couldn’t find the records needed to file a return
· you could afford paying the taxes due in previous years?
Filing your tax returns will allow you to do more with your business' financial future. On the other hand, not filing for an extended period of time could jeopardize the future viability of your business. The information in your return is often used by others to provide business loans, extend credit of financing for a home, apply for financial aid for college, calculate your social security benefits and calculate your compensation in the event you need to file for unemployment insurance.
Let experts evaluate your filing situation and help you map out a plan to get back in compliance and keep the IRS away from your doorstep.
Listed below are some key terms that should open your eyes as to why being in compliance is vital.
Burden of Proof
A formal legal requirement to provide persuasive information or evidence of the legitimacy of a claim. For tax returns, OICs, or requests for any resolution, the burden of proof to substantiate the claim or deduction rests with the individual or entity either required to sign the return or who submitted the claim.
Collection Statute of Limitation
IRC Section 6503 places an express limit on the time in which the IRS may collect a tax. Normally, the Collection Statute is 10 years from the date of assessment, but can be extended under certain situations (including bankruptcy and default of a negotiated installment agreement).
ComplianceIn order to be in full compliance, all taxes must be paid up to date and all returns required to file must be filed to date. Therefore, if submitting an OIC, IA or CNC (Status 53) for an individual, the taxpayer must have all estimated tax payments paid to date and returns filed. If submitting an OIC or IA for a business, the taxpayer must have paid all taxes for the past two quarters and filed all returns.
Currently Non-CollectibleStatus 53 is also referred to as Currently Non-Collectible, Currently Uncollectible, or CNC. Status 53 allows taxpayers to make no monthly payments to their delinquent tax debt due to minimal income to provide for themselves and their family.
Enrolled Agent
An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.The term "Enrolled" means to be licensed to practice by the federal government, and "Agent" means authorized to appear in the place of the taxpayer at the IRS. Only Enrolled Agents, tax attorneys, and CPAs may represent taxpayers before the IRS.
Estimated Tax (ES) Payments
Tax payments made to IRS for the current tax year. Those taxpayers that do not have withholding taken out of their paycheck OR owed more than $1,000 on the previous year's tax return is required to pay estimated tax payments to the IRS for the current year. Taxpayers are supposed to estimate their income at the beginning of the year to determine their estimated tax liability. If they owe taxes when they file a return even though they have withholding, the IRS will penalize them if they do not pay estimates. Estimated payments allow taxpayers to remain in compliance with the payment demands of the IRS. ES payments are due the 15th day of April, June, and September of the current year and January of the following year.If a taxpayer is required to make ES payments and they want an OIC, the taxpayer must be current with all tax payments including ES payments prior to submitting an OIC. If the OIC is submitted between January and March, the taxpayer is not delinquent until he does not pay his first ES payment due April 15th. If they are not current with last years ES payments, an OIC can be submitting including last years debt. If an OIC has already submitted, the taxpayer must continue to pay ES payments while the OIC is in review and until they have proper withholding and stop acquiring a debt. Since taxpayers are required to pay their taxes after the OIC is accepted, it is to the taxpayer's benefit to start off in compliance by paying all estimates while the OIC is in review and not by adding that year to the current OIC.
Federal Insurance Contributions Act (FICA)
This is Social Security Tax. FICA consists of Social Security (supplemental retirement income) payroll tax and a Medicare (hospital insurance) tax. The tax is levied on employers, employees, and certain self-employed individuals. On some pay stubs it may be listed as some form of Old Age Survivors and Disability Insurance (OASDI)
Federal Tax Deposit (FTD)
An employer must deposit employment taxes withheld (income tax withholding and FICA taxes) including the employers share of the FICA, either monthly or semi-weekly (depending on the amount of tax withheld) with an authorized commercial bank or Federal Reserve Bank.
Federal Unemployment Tax Act (FUTA)
A Federal tax paid by employers that provide for the administrative costs of a states unemployment compensation program for workers who have lost their jobs through no fault of their own. Only the employer pays FUTA tax. It is not deducted from the employees wages. This annual tax is reported on Form 940.
Garnishment
Legal process whereas a creditor (the IRS in this case) has obtained judgment on a debt (IRS back taxes or other debt) may obtain full or partial payment by seizure of a portion of a debtor's (taxpayer in this case) assets such as wages, bank account, etc. A garnishment is also commonly known as a levy.
IRS Form 940 - Annual Unemployment Tax Return
Each business reports Federal Unemployment Tax Act (FUTA) tax based on the amount paid to each employee. The tax applies to the first $7,000 paid to each employee [Federal base = $7,000; State base is different] in a year after subtracting any exempt payments. FUTA tax along with state unemployment systems provides payments of unemployment compensation to workers who have lost their jobs
IRS Form 941- Quarterly Tax Return/ Payments
Businesses that withhold wages from their employees are required to file 941-Employers Quarterly Federal Tax Return. These are filed each calendar quarter i.e. January thru March, filed April 30; April thru June, filed July 31; July thru September, filed October 31; and October thru December, filed January 31. Any business that pays more than $2500 in net taxes is required to make quarterly deposits to authorized financial institutions. Again, IRS is trying to aid businesses in being compliant with paying their tax.
Levy
A garnishment attached to a taxpayer's wages, bank account, account receivable, social security income, etc.
Lien
Whether a taxpayer does or does not own any property, IRS will issue a lien against their SSN to hinder them from purchasing, selling or transferring any property. A lien will effect their credit report. If the taxpayer is preparing an OIC and it is accepted, the lien will be released once the OIC payment terms have been satisfied. If not preparing an OIC, the lien will be released when the tax debt is either paid in full or the statute to collect the tax has expired. The Internal Revenue Code of 1986 provides for a statutory lien of the Federal Government to be filed for a tax debt after a proper assessment, notice and demand, and a neglect or refusal to pay. Liens can be discharged or subordinated under special circumstances. A Federal Tax Lien is formally recording in the appropriate public records office (county recorder, MENSE, Secretary of State (UCC) or US District Court) in order to establish priority over creditors, judgement lien creditors and other lenders.Notice of
Federal Tax Lien
Whether a taxpayer does or does not own any property, IRS will issue a lien against their SSN to hinder them from purchasing, selling or transferring any property. A lien will effect their credit report. If the taxpayer is preparing an OIC and it is accepted, the lien will be released once the OIC payment terms have been satisfied. If not preparing an OIC, the lien will be released when the tax debt is either paid in full or the statute of collection has expired. The Internal Revenue Code of 1986 provides for a statutory lien of the Federal Government to be filed for a tax debt after a proper assessment, notice and demand, and a neglect or refusal to pay. Liens can be discharged or subordinated under special circumstances. A Federal Tax Lien is formally recording in the appropriate public records office (county recorder, MENSE, Secretary of State (UCC) or US District Court) in order to establish priority over creditors, judgement lien creditors and other lenders.
Notice of Levy
A notice imposing and collecting a fine. When used in conjunction with IRS, this normally refers to the document that is served on a third party that attack wages, bank accounts, and other personal property.
Power of Attorney
The legal form giving an authorized individual (Certified Public Accountant, Enrolled Agent, or Attorney) authority to represent a taxpayer before the Internal Revenue Service.
Refund Statute Expiration Date
A taxpayer may request a refund of an overpayment within three years from the time the return was filed or within two years from the time the tax was paid, whichever is later. If no return was filed by the taxpayer, the claim must be filed within two years from the time the tax was paid (IRC 6511(a)).
Schedule C - Profit and Loss from Business
When a taxpayer has an unincorporated business and is a sole proprietor business owner, they are required to file taxes on Schedule C attached to their Form 1040. Schedule C allows taxpayers to deduct the expenses incurred during the tax year from the gross income received. Schedule C taxpayers are required to pay half of their Self-Employment tax since they work for themselves. Any debt incurred by a sole proprietor will be recorded as a 1040 liability under the taxpayer's SSN and can be found on their IMF (Individual Master File). Taxpayers need to be able to prove the figures listed on the 1040, Schedule C.
Schedule K-1 - Partner's Share of Income, Credit, Deductions
Each partner within the partnership uses this Schedule K-1 to report his or her share of the partnerships income, credits, deductions, etc. This form is not filed with IRS, but is simply a record-keeping requirement. Even though partnerships are not generally subject to income tax, each individual partner is liable for tax on their share of the partnership income, whether or not it is distributed.
Self Employment Tax
Self-employment tax is the social security and Medicare tax for people who work for themselves. When an individual pays self-employment tax, they are contributing to their coverage under the social security system. This differs from wage earners who have social security taxes taken from their wages. An individual must pay self-employment tax if: 1) the net earnings from self-employment are $400 or more OR 2) Services are performed for a church as an employee and $108.28 or more is received.
Subordination of Federal Tax Lien
The legal process whereby the IRS will subordinate its Federal Tax Lien to a third party by temporarily setting aside the lien to enable a refinance or sale of a piece of property. Normally the IRS must determine that it is in its best interest to subordinate, which translates into, "What are we going to get out of this?"
Substitute for Return
If a taxpayer has not filed a return and the IRS feels it can collect from the money earned, an IRS Revenue Officer may file a SFR. When a SFR is filed, the agent lists all of the income reported to the IRS for that year, but only gives the taxpayer one exemption and only the standard deduction (i.e. nothing is itemized). Even if for the past 10 years the taxpayer has itemized, the IRS prepares the return in their favor. If the taxpayer has children the IRS tries to file the return based on the information from the previous years (i.e. married filing joint with 2 children), but IRS will only file this way if they have previous returns showing this info.
There are lots of companies that will offer tax debt help, but true tax help is not just setting up payment plans, it’s also planning for the future. Don’t let procrastination and you current life circumstances hinder your future success. Get compliant and regain your financial success.
S. Raines, Sr. Financial Advisor/Tax Preparer
www.effectur.com
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