The IRS Solution If You Cannot Pay Your Taxes

The Internal Revenue Service is very upfront about its goal in dealing with taxpayers. While it obviously wants to collect all taxes due, it is also focused on keeping you in the system. This attitude is a relatively recent change undertaken in the 1990s. The IRS essentially determined it made better financial sense to have you in the system versus spending hundreds of man hours hunting you down. In practical terms, this means you need not have a panic attack if you do not have sufficient funds to meet your tax obligation. If you panicked this past tax deadline, there was no need.

The IRS will put you on a payment plan if you cannot pay your taxes on time. The plan calls for monthly payments like a car loan, to wit, they are an equal amount each month so you know what you are obligated to pay.

You are only eligible for a payment plan if you file a tax return. Once you file, you want to use form 9465 to request the payment plan. It costs $43 to file the application. The IRS will then get back to you on what it is willing to do. The payment plan process is not an audit. Millions of people apply each year and the IRS considers it standard operating procedure. No red flags are raised when you file the application. To the contrary, the IRS tends to view you as an honest tax payer since you are acknowledging the full amount due and trying to find a way to pay.

Importantly, the payment plan should be viewed as a means to buy time. Making the monthly payments will eventually pay off the debt, but it will take years. Interest on the amount you owe will also continue to accrue. The best strategy for using the plan is to make the monthly payments while saving up money to make a lump sum payment to satisfy the debt.

If you cannot pay the taxes you owe, do not panic. The payment plan option will keep you out of trouble with Uncle Sam.

Did you know that Congress passed a bill in 2005 that can provide you a tax credit (that’s a dollar for dollar reduction in your tax bill to Uncle Sam!) for items that you may need to purchase for your house or even a new car?

That’s right Congress passed the Energy Policy Act of 2005. This federal legislation can provide you with up to $500 in tax credits for improvements to your house. Over $3,000 in tax credits for buying a hybrid car, and if you’re a person who wants to help the environment and you install some solar electric panels on your roof or a solar water heater collector on your roof you can get up to another $2,000 for each!!

Wow, where was this bill when I had some home improvements performed on my house two years ago. And if you’re a business owner you can get tax credits too for your building, company vehicles, and The Energy Policy Act provides a variety of tax credits for businesses, homeowners, home builders, appliance manufacturers, and hybrid/fuel efficient automobiles. Some of these tax credits expire in December 2007 while others expire in later years. And even our Congress is looking a spreading these tax credits around to as late as 2015.

So what do I have to do to get qualify for these tax credits and is it really something I need. Well this all depends on your needs. If you are a homeowner you can qualify for up to $500 in tax credits if installing new items in your home, they are up to $200 for a new furnace or boiler, another $200 for new windows, and up to $300 for a new air conditioner, or new doors, or a water heater, or insulation.

The maximum tax credit you can claim for your house is $500, with the exception of installing a solar electric system (call Solar PV – photovoltaic) or a solar water heating system. Both of these systems can net you another $2,000 each in tax credits.

You can also claim up to $3,400 in tax credits when buying a new hybrid vehicle. The tax credit is based upon the type of vehicle and how much does fuel savings does the hybrid achieve when compared to its non-hybrid cousin. The more efficient hybrids are going to qualify for the higher tax credits and reports from such distinguished periodicals such as Consumer Reports is saying a Hybrid car actually costs less than the non-hybrid version after five years this includes all of the associated maintenance costs and fuel costs over the life of the vehicle.

Depending upon what type of business you own you can qualify for thousands of dollars in tax credits. If you’re a homebuilder you may qualify for a $2,000 tax credit, and manufactured homebuilders can receive either a $2,000 tax credit or a $1,000 credit.

Congress did not forget the business owner and also provides a tax credit for solar photovoltaic or solar water heating systems and the credit can exceed $2,000. The owner of a commercial building, including apartment complexes, can also claim a deduction (not a tax credit) on new efficient lighting installed at their facility.

Gas station owners can add an Ethanol system at their station and receive thousands of dollars in tax credits. The IRS continues to interpret and release notices to the public describing their interpretation of the congressional bill.

Before buying any new product for your house checkout different websites to obtain updated information on the tax credits, what has changed, and what has recently been released through a Notice.

As Thornton Wilder said “it’s not worth a thing unless it’s spread around and encouraging young things to grow.” Congress has spread around tax credits and incentives for us to help this industry grow lets all do our part and remember there may be a tax credit available to you when you make an improvement to your house or buy a new car.

Solar Tax Credit

Solar energy is a clean, renewable energy source. The production of solar energy on residential and commercial structures creates no pollutants and is starting to make serious financial sense. In 35 states, the concept of net metering is now an established fact. Net metering simply means you can sell energy from solar panel systems back to utilities, thus eliminating or seriously reducing utility bills. As oil and natural gas costs skyrocket, the Federal Government is doing even more to promote the use of solar energy.

In 2005, Congress enacted the Energy Policy Act. As part of the act, a tax credit was established for any person purchasing and installing residential solar energy systems for electric and water heating purposes. If you purchase and install solar systems for either of these purposes, you can take a 30 percent tax credit. If you install systems for both of these purposes you can double the tax credit. To avoid tax abuse, each tax credit has a cap of $2,000.

Importantly, tax credits are far more valuable than tax deductions. Tax deductions are taken from your gross income prior to figuring the amount of tax owed. Tax credits are a dollar for dollar reduction of the actual amount of tax you owe. For instance, if you prepare your tax returns and find you owe $5,000 to the IRS, a tax credit would be deducted from this $5,000 figure. In short, a tax credit gives you a lot more bang for your buck.

To claim the solar tax credit, there are a few restrictions and requirements. First, you can’t claim the tax credit if you use the solar system to heat a hot tub or pool. Second, the system must be certified by a solar rating certification corporation to establish that you, in fact, installed a working system. Third, the system must be activated between January 1, 2005 and the end of 2007. Finally, you cannot claim the credit if the government gave you a grant or financing to purchase the system, to wit, no double dipping.

When solar energy is discussed as a potential alternative energy source, most supporters point to the environmental benefits. Ultimately, the benefits to ones bank account will really make the difference and the solar tax credit is a solid step in that direction.

The typical home business owner stresses out more in April than in any other season. Christmas, when his business may be booming and orders come in faster than he can write them down, or summer when his clients are demanding things that no sane person would demand in the midst of gorgeous, sunny days that call his name almost audibly to come and play-both of these seasons pale in comparison to April. The home business owner has two basic options and one non-negotiable choice to make regarding taxes.

First and foremost, we must consider the non-negotiable choices, which in and of itself is an oxymoron. He must pay his taxes. While nothing might please him more than just relaxing in April, listening to the pitter-patter of spring rain and thinking about the tulips pushing their delicates leaves through his moistened soil, he must pay his taxes. Though he dreams about finding Uncle Sam in person and simply telling him where to put his blankety-blank forms, he must pay his taxes. And though he wants nothing more than to just forget that he had an incredible year with oodles of income that means his family can now take that coveted vacation to Disney World, he must pay his taxes.

After all, history has shown him the results of those who do not pay their taxes. Al Capone, for example, ordered executions of some of his own men who betrayed him. He ran black market liquor operations in the midst of prohibition, and yet what did police finally send him to prison with? Tax evasion. Consider this: if Capone had simply done what every home business owner curses about every 12 months, he could have gone on with his luxurious, whacking-the-other-guy life. Business owners, good and bad, must pay their taxes.

Home business owners then have a basic choice once they move past the non-negotiable decision of whether or not to pay in the first place. Who will file their taxes? Will they turn to a Certified Public Accountant, the lady or guy down the street that actually obtained a degree and passed an extensive, written exam focused on just this sort of thing, or will they consider a box with a silver disc that tells them how to file? Their choice will ultimately determine a couple of things. First, it will determine how much they will pay in taxes. Second, it will determine if the IRS will flag them as suspicious and demand an audit, which will mean at least another month of stress. Certainly both the CPA and the cardboard box have their benefits.

Regardless of what the home business owner chooses, he should take care to save every receipt possible throughout the year. When he does this, taxes become less of a burden regardless of who does the filing. If he chooses to file, he will have the necessary documentation when he wants to deduct that package of Bic pens that he bought back in May. If he chooses the CPA, then the CPA will have the necessary documentation. Ultimately, it does not matter who does the taxes at this point, because either party needs the receipt.

Taxes clearly burden the business owner. However, we all must pay them, business owner or not. In the end, the final burden rests on the one who writes the check, thus business owners must consider their options carefully to see who can help them retain the most profit.

1. Participate in company retirement plans. Every dollar you contribute will reduce your taxable income and thus your income taxes. Similarly, enroll in your company’s flexible spending account. You can set aside money for medical expenses and day care expenses. This money is “use it or lose it” so make sure you estimate well!

2. Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don’t pay in at least 90% of your current year taxes or 100% of last year’s tax liability.

3. Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other deductions such as property taxes and charitable donations.

4. Keep your house for at least two years. One of the best tax breaks available today is the home sale exclusion, which allows you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your home from your income. However, you must have owned and lived in your home for at least two years to qualify for the exclusion.

5. Time your investment sales. If your income is higher than expected, sell some of your losers to reduce taxable income. If you will be selling a mutual fund, sell before the year-end distributions to avoid taxes on the upcoming dividend or capital gain. Also, you should allocate tax efficient investments to your taxable accounts and non-efficient investments to your retirement accounts, to reduce the tax you pay on interest, dividends and capital gains.

6. If you’re retired, plan your retirement plan distributions carefully. If a retirement plan distribution will push you into a higher tax bracket, consider taking money out of taxable investments to keep you in the lower tax bracket. Also, pay attention to the 59-½ age limit. Withdrawals taken before this age can result in penalties in addition to income taxes.

7. Bunch your expenses. Certain expenses must exceed a minimum before you can deduct them (medical expenses must exceed 7.5% of your adjusted gross income and miscellaneous expenses such as tax preparation fees must exceed 2% of your AGI). In order to deduct these expenses, you may need to bunch these types of expenses into a single year to get above the minimum. To achieve this, you might prepay medical and miscellaneous expenses on December 31 to get above the minimum amount.

The most important thing is to be aware of the tax deductions and credits that apply to you and to plan for taxable events. And don’t be afraid to ask for help. The benefits from consulting an experienced tax professional far outweigh the cost to hire that professional.

Does that outrageous statement sound familiar?

Maybe it’s your brother-in-law, or a fellow Soccer Mom, or a co-worker at the office.

And so you think to yourself, “What am I doing wrong? How come I’m paying taxes and so-and-so says he/she pays nothing? How do they do it!”

Is it really possible to pay “zero taxes”?

For purposes of this article, let’s give your “no-tax” friend or relative a name. Let’s call him “Charlie” (or if he is a she, just think “Charlene”).

OK, what is Charlie up to? What’s his secret?

Charlie has no secret. He’s not doing anything that you should be doing. Do not be envious of Charlie, and here’s why . . .

I can think of at least five reasons you should ignore whatever Charlie says about his “no-tax” situation.

REASON #1: Charlie is a liar. Every family has one, so don’t feel bad. Let’s face it, some people just like to indulge in fabrications to make themselves feel good. Charlie is telling you a big fat lie because Charlie has “issues.” ‘Nuff said?

REASON #2: Charlie is pond scum. OK, hear me out on this one. I don’t mean to offend you if Charlie is a close and dear relative, or your best friend, but I’m going to give it to you straight: Charlie cheats on his tax return, and he cheats big time. There are plenty of folks out there like Charlie. He’s one of the reasons that you and I pay so much in taxes — he doesn’t report all his income, and he deducts bogus expenses by the thousands.

He and his accountant may even be in cahoots on this. Charlie brings in his records and his accountant crunches the numbers, then calls Charlie and says, “You owe $5,000.” So Charlie rummages around in his files and somehow manages to come up with another batch of expenses that miraculously
reduce his balance due to zero. It’s like magic!

End result: Charlie’s tax return is a big lie.

Charlie is a thief. Charlie should be put in jail for the tens of thousands in taxes he has illegally withheld from the government over the years.

REASON #3: Charlie is stupid. Again, I’m sorry if I’m being too hard on Charlie. But some people are so clueless about taxes that if they have no balance due on their return, or if they are getting a refund, they mistakenly believe they didn’t pay any tax that year.

And believe it or not, this is actually a very common misconception that thousands of people cling to. Ah, to be so blissfully ignorant!

I hope you are not so naive to think that the “bottom line” on your tax return tells the whole story about your tax liability. It doesn’t.

REASON #4: Charlie is broke. Charlie may actually pay zero taxes because –are you ready for this one? — Charlie doesn’t make any money!

Charlie owns a small business or works full-time at his self-employment activity, and Charlie may rake in hundreds of thousands in income from sales of his product or service — but Charlie’s business spends more than it brings in, and Charlie’s business has a loss every year.

So Charlie doesn’t really have a tax problem. Instead Charlie has any number of other problems. He has a marketing problem, or a management problem, or a personnel problem. Charlie’s business is failing, and paying zero taxes is just a symptom of a business that will eventually close.

REASON #5: Charlie is just scraping by. Charlie’s business may not be losing money every year, but it’s not really making much either. He has a small profit — enough to keep him busy. His business may even “look” profitable, but it’s really the classic shoestring operation.

So now, I ask you, do you really want to pay zero taxes? People who don’t pay taxes are usually in one of these five categories: Chronic Liars, Pond Scum, Stupid, Broke, or Just Scraping By.

The purpose of business is to be profitable.

The unavoidable result of a profitable business is taxes. And yes, you should do everything legally possible to reduce those taxes. But if you are going to be successful, you are going to pay some taxes.

When it comes to taxes, stay away from Charlie.

For many people the tax season is a very stressful period. Understanding the IRS tax forms can be a very difficult and frustrating thing to do with all the complex codes and deductions on the IRS tax forms. However, you can still file you taxes with an easy process by going with online taxes. Electronic filing is a way to file your taxes yourself with very little stress and there are quite a few advantages to filing online.

The first thing you must decide is whether you are going to go with an accountant or file online taxes. If you plan on filing online yourself then you should decide if you are going to use an e-file program or tax software. E-filing programs is quickly becoming one of the more common ways for individuals to file their taxes. Even many tax professionals are starting to use electronic filing since it is a quicker method for them. By choosing to file online you will also receive your refund quicker. If you are using tax software you will even have the choice of saving your information from previous tax seasons so you can easily gain access to it for future tax seasons.

However, when filing online there are some things you should always remember. The most important of these is to always read your W-2 form. Before you start electronic filing you should read the back of the W-2 form and make sure you know what each of the boxes means and what they are for. Even when doing online taxes you should always print a copy of the taxes for your personal records. You should also print out the confirmation that the tax software gives you showing that your tax forms have been received by the IRS.

If you are unsure about doing your own taxes because you don’t know about the income tax laws then you don’t have anything to worry about with online taxes. Many of the tax software programs will provide you with additional advice if you need it. Even if you have done taxes before or believe you know how the income tax system works, it is still a good idea to read over all the information that the software gives you to be safe. The information may contain valuable tips including additional deductions that you may not have thought of before. This is just one of the many benefits you can get by filing your taxes online.

The most popular type of computer software for taxes is TurboTax. This is considered to be one of the best programs to use because it can electronically gather 1099 or W-2 data from financial groups and businesses. It is also easy to electronically file a tax return and to get updates for forms that need to be filled out through easy to use online upgrade systems.

One of the best benefits of computer software for taxes is that it can be used to help find deductions that a user can take advantage of for saving money. More than three hundred different deductions are listed in the TurboTax program. This can be used to increase one’s tax refund. TurboTax also helps to alert people of information entered that may cause an audit to take place.

TurboTax is a program for people who have had a few things happen to them in the previous year. People who have education expenses and people who either own or have sold a home in the past year should use it. It is also useful for people with a great amount of medical expenses. Since there are many different deductions that can be found in this program, it will definitely be used by people who have made a huge charitable donation in the past year.

H&R Block TaxCut is another type of computer software for taxes. This can be used for filing taxes for the country and for the state that one lives in. This program is supported by the country’s top tax filing group and this computer software for taxes will be released with new editions every year that reflect all of the many changes in the tax code. Past versions dating back to 1992 are also available for those who have taxes from the past that are due.

TaxCut can be used to gather financial data from programs like Quicken and Microsoft Money to help make it easier to read financial data that is needed for filing taxes. It also has an error check feature that is used to make it easier to find difficulties in a tax return so that an audit can be prevented and trouble with the government is avoided.

For those who are looking for deductions in taxes ItsDeductible can be used. Made by the makers of TurboTax, ItsDeductible records charitable donations made throughout the year and can be imported onto another tax software program like TurboTax or TaxCut. It also produces accurate values for items that have been donated when items instead of money is donated to charities.

With the greater amount of accuracy that is used to track deductions, hundreds or even thousands of dollars can be saved through additional information for deductions. ItsDeductible can even automatically handle IRS Tax Form 8283, which is a form that is needed for non-cash donations that are worth more than five hundred dollars in value.

These are all important programs for computer software for taxes. Many of these programs can be used to help with assisting users in getting full information on tax code updates and forms that are going to be needed for filing taxes. Computer software for taxes can be used to find deductions, handle deductible services and even take care of taxes that have been owed for years. These programs are indeed useful and can be used to help make it easier to take care of taxes and even earn more money on a return. This is the most important thing that keeps the software in high demand.

When you file your taxes, you can find someone who can do the job for you. Look for a person who is knowledgeable, an experienced expert with tax specialization. There are actually various available types of assistance from people such as:

1. Tax Preparer

They have good knowledge when it comes to filing taxes. Tax preparers are persons that are highly trained and educated in preparing your tax returns and preparations.

2. Enrolled Agents

Compared to tax preparers, an enrolled agent can show you your taxes with an assessment. They are the “advanced” tax preparers, however the superiority or work and skills differs from agent to agent.

3. Certified Public Accountants

You cannot only use your CPA to prepare taxes for you; they can also help you to keep yourself from paying too much taxes. Their services are very expensive. You have to pay them in an hourly basis ranging from 200 to 300 dollars. However, they are worth the charges because a lot of them are very good. CPA’s can give you the ins and outs about taxes. They can provide you ways on how to save on your taxes legally.

In choosing among the three, consider first your finances. If you have reasonably small earnings every year, you do not have to hire someone whose service charge is bigger than your income. Hire someone who is within your budget.

Employment taxes include the following.

1. Federal income tax withholding

2. Social Security and Medicare taxes

3. Federal unemployment tax (FUTA).

Federal Income Taxes/Social Security and Medicare Taxes

You generally must withhold federal income tax from wages paid to an employee. Form W-4 is used to determine the specific amount, although most payroll services or your accountant will do this for you.

Social security and Medicare taxes pay for benefits that workers and families receive under the Federal Insurance Contributions Act (FICA). Social security tax pays for benefits for the retired, survivors, and disability insurance distribution provisions of FICA. Medicare tax pays for benefits under the medical care provisions of FICA. As an employer, you must withhold a percentage of these taxes from employee and match the withholding amount.

In general, you must deposit these taxes by check or cash to an authorized financial institution, typically your bank. Check with your tax professional to make sure you are not required to use the Electronic Federal Tax Deposit System (EFTPS). Regardless of the payment method, you will then report them on Form 941, the Employer’s Quarterly Federal Tax Return

Federal Unemployment Tax (FUTA)

FUTA is a combined federal and state program that provides unemployment compensation to the unemployed. As a business owner, you are solely responsible for paying this tax, to wit, nothing is withheld from the paychecks of your employees. FUTA is determined by using Form 940, but you are encouraged to use a tax professional to determine payment amounts.

Employment taxes can be frustrating for a small business owner. They are, unfortunately, a necessary evil as your business grows.