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Welcome to Tax Relief Tips
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Stop IRS Wage Garnishment
DebtHelp.com Tip: How do you stop an IRS wage garnishment? As in an IRS attachment situation, you have just a couple of options.
First, keep in contact with the IRS. It has been mentioned in this tips book many times, but this is important. The IRS simply wants to know what is going on with you and truly wants to work with you. Do not ignore them.
Second, arrange repayment of unpaid taxes. Enter in a tax resolution method that is most appropriate for you. Installment agreements, penalty abatements, offer in compromise – all are there to help you repay your tax debt.
Third, keep current with your payment arrangements. If you fall behind in any of them, the IRS may cancel the agreement and move forward in its collection efforts.
Fourth, do not take it out on your employer. They are simply following instructions. It is your fault you are in this situation, not theirs.
Fifth, live on less. Learn to live on less as your wages are taken away from you to pay your back taxes.
Sixth, you can request a release from your wage garnishment.
The best way to stop an IRS wage garnishment, is to communicate willingly with the IRS. Too many taxpayers believe that by ignoring the IRS, they will go away. That is not true. The IRS can be the most persistent and annoying creditor you will ever have. They have a knack of popping up years later, when you thought it was safe.
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Assets That Might Be Levied
Once you have not voluntarily paid, or agreed upon paying, your back taxes, the IRS starts their enforced collection process. The point where the IRS seizes your assets is known as the IRS tax levy stage. Some of your assets that the IRS may take from you include:
Bank accounts
Personal property such as accounts receivable from your business, computers, furniture
Wages
Income from customers
Vehicles (boats, motorcycles, cars, etc.)
Social Security benefits
Retirement plans
Real property (real estate you own)
Stocks, bonds, investment items (such as dividends)
State and federal income tax refunds, current and future
Accounts that belong to you, but are held by someone else. For example, cash loan value of your life insurance, licenses, rental income, mutual fund accounts.
An IRS levy arrives shortly after the Notice of Lien. You may receive a written notice, or not. An IRS levy can happen even though no a tax lien has not been filed.
An IRS levy occurs only when you have not attempted to contact the IRS or repay your unpaid tax bill. They do not happen totally out of the blue.
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Calculating Your OIC Offer
DebtHelp.com Tip: In order to request an Offer in Compromise agreement, you need to have a realistic figure in mind that fits in with your budget. Look at your total unpaid tax bill and figure out what is a reasonable and affordable amount you can pay to clear it? How do you calculate this figure?
Here are some helpful steps you can follow to arrive at your Offer in Compromise figure:
Organize documents. Gather together all your financial information that applies to your situation. For instance, you will need your titles, bank statements, mortgage notes, insurance policies, cancelled checks, and other financial-related information. You also will need any financial statements including income information (your W-2 for wages).
Disposable income. Your disposable income is defined as the amount of money you have left after paying all of your expenses. Technically, it is your gross income less any monthly living expenses. Examples of monthly living expenses include utilities, taxes, groceries, health care, mortgage payments, and secured debts. Worksheets are helpful to calculate this figure.
Net worth. This step involves knowing (and calculating) how much your net worth is. Net worth is defined as your assets valued at current fair market value less any applicable expenses. Applicable expenses would include those you incur when attempting to sell your assets (otherwise known as liquidation expenses). The use of a worksheet helps with this.
Total. The final step will be to add together the above two figures, disposable income and net worth. Project this figure out over 60 months and you will have the figure needed for a reasonable offer.
Method of payment. Finally, figure out how you will pay the amount. Will it be check, credit card, money order? Let the IRS know.
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Back Tax Forms
Whenever you are ready to file your back taxes, you have two options:
Obtain directly from the IRS
Develop a substitute form
IRS. The IRS usually carries tax forms for prior tax years. You can obtain them by ordering online, downloading them from the IRS website, or calling the IRS toll-free to order them. You will be calling 1-800-829-1040 to request your back tax forms.
Substitute tax forms. The IRS has a Substitute Forms Unit that accepts IRS tax forms that you develop. However, there are guidelines that must be met. For instance, the substitute tax form you develop must:
Be on white, unlined paper
Conform to the physical layout of the applicable IRS form. (Have the same number of pages, i.e.)
Wording should match the official IRS form as closely as possible
All perjury statements must be worded verbatim as the original IRS form.
Prior approval is needed unless the only change is the preprinted year.
The substitute form you develop must not hinder the IRS tax process.
You need to know that the following tax forms are not allowed by the Substitute Forms Unit. You will need the actual tax form where applicable, in other words.
· Wager earner documents: W-2, W-2c, W-3, and W-3c (see Publication 1141 and 1223 for information on these forms).
· Income reporting documents: 1099 series, W-2G (gambling winnings), 1096, 1098 series, 5498 series and 1042-S (Publication 1179 provides more information on this area)
· State tax forms. Period.
· Federal Tax Deposit (FTD) coupons
· Forms 1040-ES (OCR) and 1041-ES (OCR), which may not be reproduced.
· Forms 5500, 5500-EZ, and associated schedules (see the Department of Labor website (www.dol.gov) for information on these forms).
· Requests for information or documentation you received from the IRS.
Submitting. You can send your substitute tax form to the Substitute Forms Program via email. The email address is taxforms@irs.gov. In the subject line, be sure to put “PDS Submissions”. Your documents must be in pdf format.
Here are some more guidelines for sending email substitute forms to the IRS:
Do not send individual files for each of your substitute forms. You need to send one attached pdf file containing all of the forms you wish to submit.
The process of emailing your substitute tax forms will not quicken the review or approval process. The files are dealt with in the order they are received, along with any mailed-in submissions.
Of course, the smaller your submission, the quicker the processing time.
Be sure to optimize your pdf file prior to submitting.
Largest attachment is 2.5 megabytes.
Zip files are acceptable.
In addition to submitting forms via email, you may continue to send your submissions to:
Internal Revenue Service SE:W:CAR:MP:T:T:SP Attn: Substitute Forms Program 1111 Constitution Avenue, NW Room 6406 Washington, DC 20224
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Tax Benefits From A Tax Loss
DebtHelp.com Tip: Whenever you operate a business, you take the risk of incurring a loss. If this happens to you, the tax benefits you reap from a tax loss depends upon whether your business is incorporated or non-incorporated. It also depends upon whether you take an active part in the business operations, or are simply an investor.
Incorporated. In general, if your business is incorporated (a C corporation), the tax loss belongs to the corporation, not the shareholders. Your shareholders would get a tax break only in the year that your business closes or in the year they sell their stock at a loss. You will use IRS Form 1120 to report your business activities to the IRS.
Unincorporated. If you operate an unincorporated business such as sole proprietors, limited liability companies, partnerships, and Subchapter S corporations do, you can take advantage of tax loss benefits easily.
In general, you would take your business’ operating loss and put it onto your individual income tax return. The operating loss is known as a NOL (net operating loss) and occurs when your business expenses and deductions are larger than your income sources.
Your NOL can be used to offset any other income you have received. This, in turn, will lower the total amount of income that is subject to tax. You cannot, however, decrease your income to below zero by using your NOL. If your total NOL was to decrease your income below zero, you would need to carry forward or carry back the unused NOL to previous periods.
See how this can offer you a tax relief? This is a simplified description of using an NOL to your tax advantage; it is best handled by a tax professional.
Investor. If you are an investor in a business that experiences an operating loss, you are not entitled to claim any tax benefit of an ongoing business. In simple terms, you can, claim a capital loss.
Of course, there are IRS tax rules and regulations that must be met regarding any tax loss you experience in your business. Here are two:
Tax Rules. You also will not be allowed to take (deduct) your tax loss unless you can show the IRS that you operate your business with a “profit motive” in mind. The IRS wants to see that you truly have a business and simply not a hobby. Otherwise known as the ‘hobby loss rule’, the IRS must see you making a profit three out of five years in order to qualify your business venture as a true business.
For larger incorporated businesses, another tax rule that must be met is known as ‘at-risk rules’. This IRS tax rule states that you cannot deduct more than your economic investment in the venture. This is intended to target the investments known as ‘tax shelters’.
If you intend on carrying over your venture’s net operating loss (NOL), you must notify the IRS of this. There are two ways for you to do this:
You will need to attach either IRS Form 3621 (Net Operating Loss Carry-Over). This form will show the IRS how much loss is left over after the first tax year.
Or, you can send a written statement along with your income tax return for the year of your tax loss.
IRS Publication 536 provides more information on the area of NOLs.
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Applying Guidelines For An Offer in Compromise
Offer in Compromise programs offer taxpayers a way to reduce their tax debt at less than the full original amount of tax debt. Sometimes this program is affectionately known as ‘pennies on the dollar’. The agreed amount in an Offer in Compromise includes the original unpaid tax bill, interest, and penalties. In order to apply for an Offer in Compromise (OIC), you need to follow some guidelines.
Form. You will need to file IRS Form 656 as a requirement.
Online. You can also go online to request an OIC.
Financial statement. You will need to supply the IRS with financial information about your situation. This is done on IRS Form 433-A for individuals. For businesses, you will use IRS Form 433-B.
Verification. You will need to supply verification of your financial situation. Verification includes bank statements, vehicle titles, mortgage notes, financing agreements, etc.
Cover letter. Write a cover letter explaining why the IRS should accept your OIC offer.
You need to convince them it is to their best interest to enter into this Offer of Comprise agreement. Enclose this letter with your IRS Form 656.
Fee. There is a $150 application fee. This is nonrefundable. Include this with your application package.
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Offer In Compromise Defined
DebtHelp.com Tip: Offer in compromise. This IRS tax resolution method has the IRS and you settling your income tax debt at less than the original amount. If you have determined that an installment payment plan would not be beneficial to you, you may apply for an Offer in Compromise. This is one of the last voluntary steps along the IRS collection process. The Offer in Compromise program is sometimes preferred over installment agreements that last years and cost the IRS money plus time.
The Offer in Compromise program compromises your total tax, interest, and penalties for an amount that considers your assets, income, and general ability to pay.
Both the IRS and you can benefit by becoming involved in an Offer in Compromise program. The IRS is collecting some unpaid taxes from you while you are paying less than the original amount owed. You can have the option of paying either in a lump sum or in installments.
This program does not come easy, though. You need to convince the IRS that entering in an Offer in Compromise agreement is the best option for them. Explain this in the cover letter you will need when applying.
Plus, the process is very time-consuming and extensive. There are definite procedures that you and the IRS need to follow in order to enter into an OIC.
Even though the IRS Offer in Compromise is a great way to reduce IRS debt, this tax resolution method is not a quick and easy fix. Sometimes Offers in Compromise can go for years. It is the most complicated and time-consuming of the methods used to collect unpaid taxes.
