3 Essential Steps To Prepare for Tax Season and Avoid Tax Trouble
Taxes are one of those topics people hate to talk about or even think about, especially if they end up owing money in back taxes every year. That's why many taxpayers wait until the very last moment to prepare for tax season. It’s also why nearly 14 million Americans find themselves receiving threatening letters from the IRS and in some sort of collection proceedings.
With the new Biden administration taking office in 2021, more tax changes are almost certain. COVID relief is another factor to account for, and things are changing almost daily. So it's never too early to start preparing for tax season.
Our firm specializes in helping people with back tax debt settle with the IRS, but often, the best tax resolution is simply doing it right ahead of time.
In order to help you minimize your tax headache, we wrote this article to help you before you find yourself in tax trouble. Here are three simple steps to start preparing now for tax season.
Note: If you already have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief, file years of unfiled tax returns, and sometimes settle their tax debt for a fraction of what’s owed.
With that said, let's jump into the article on how to prepare for tax season.
1. Get Your Paperwork Organized
If you're rushing around at the last minute to find all of the paperwork that you need for filing your taxes, you're making tax season harder on yourself than it needs to be.
Start organizing all of the financial information you may need in order to file your taxes this year. It’s best to do this throughout the year rather than at the last minute to ensure that you don't miss anything.
We suggest making a checklist of all the documents you’ll need to gather such as;
- Income from your salary/main job via a W2
- 1099 income you might have earned throughout the year on any side gigs or one-off projects
- Cryptocurrency account statements
- Brokerage accounts
- Savings account that earn interest
- Any asset sales
- A list of qualifying expenses and deductions you think you qualify for with proper documentation. Contact your tax expert for a list of expenses and deductions you can take.
Failing to report income or having questionable expenses are two of the biggest pitfalls we see with taxpayers who find themselves in tax debt or getting audited. Make sure you have documentation for everything.
Another factor that’s changing things for the 2020 tax season is COVID. Make sure to document your financial situation and how it was affected by COVID, this could lead you to find tax relief as things continue to evolve in 2021.
2. Evaluate Your Tax Obligations, Filings And Compliance
As a small business owner, it's essential to start working on your tax obligation management early on. You’re likely spinning a ton of plates and taxes are likely on the backburner, yet there are so many little things that can fall through the cracks. At this time, you should also consider income taxes, employment taxes, self-employment taxes, sales tax, and local taxes.
You should have already had your employees fill out new W-4 forms and have all your contractors turn in their W-9’s so you can provide them with 1099’s, but there's a chance they may not have turned them in yet. Ensure that this is taken care of as early as possible.
If you find yourself behind on your payroll taxes or other business tax problems, contact our firm now. We help business owners negotiate with the IRS or state and find tax relief.
3. Ask Questions and Be Proactive
This step is necessary, but you may not feel comfortable doing it. It's essential to ask the basic questions from your tax professional. What types of receipts should you be saving? What will happen if I hire additional employees this year? What if I owe back taxes and can’t pay? Your tax professional should do more than just take the information that you provide them and file your taxes. If you owe back taxes and know you won’t be able to pay, and if your tax professional doesn’t have good answers, it could be time to consult a professional tax relief firm like ours.
A tax resolution firm like ours has years of experience helping taxpayers just like you resolve IRS and State tax problems and negotiating the best deal on your behalf. If you’ll owe the IRS money for 2020 or prior years, contact us now for a consultation to learn about your options.
The good news is the IRS has several debt settlement options including their Fresh Start Initiative and is generally willing to settle with taxpayers who have been blindsided by a surprise tax bill and can’t pay it off in full.
Hopefully, tax filing season will bring the big fat refund you are expecting, but it is important to be prepared for the unexpected. The new tax bill has unleashed a host of unintended consequences, including smaller refunds and surprise tax bills. By being prepared, you can reduce the pain of a surprise tax bill, so you can get on with the rest of your life.
7 Tips to Reduce Your Chances of Falling Victim to Tax Identity Theft
Tax identity theft occurs when identity thieves obtain your Social Security number and file a fraudulent tax return on your behalf.
According to the Federal Trade Commission, tax identity theft is the most common form of identity theft. The FTC estimates that it costs taxpayers over $5 billion a year.
Consumer advocates believe that since Social Security numbers are so readily available on the dark web, a majority of Americans are at risk.
Unfortunately, most tax identity fraud victims don't realize that they have fallen victim until they try to file their return. Luckily, there are some important tips that you can follow to reduce your chances of falling victim to tax identity theft.
Our firm specializes in negotiation with the IRS on behalf of taxpayers and settling back taxes, often for a fraction of what you owe. In the case of tax identity theft, the IRS has protocols on how to handle this and our firm can help. If you find yourself the victim of tax identity theft, reach out to our firm and schedule a consultation today.
1.) File Your Taxes as Soon as Possible
According to the FTC, tax identity thieves file their fraudulent returns early because they know that most taxpayers wait to file their return later in the tax season. Therefore, you should file your tax return as early as possible to lower the chances that a scammer will file your return fraudulently.
2.) Monitor Your Credit Report
Your annual credit report will tell you the different times your Social Security number was used throughout the year. Therefore, if you notice that someone else has used your Social Security number to obtain employment, there is a good chance that you are currently (or about to become) a victim of tax identity theft. You will need to contact the IRS immediately to report the suspected fraud.
3.) Safeguard Your Personal Information
You need to have a safe place to securely store personal information. For example, you might consider a safe or a bank deposit box. You must never leave paperwork with personal information on it just lying around your house where it would be easy for a visitor to swipe it. Also, never throw away documents with confidential information on them without shredding them first. Identity thieves will often go through trash looking for paperwork with personal information on it.
4.) Review Your Annual Social Security Earnings Statement
The Social Security Administration provides taxpayers with an annual earnings statement. You can find yours by registering an account on the SSA website. Review your earnings statement carefully. If you notice a discrepancy in your reported earnings, contact the SSA and the IRS.
5.) Never Share Personal Information
Don't share your Social Security number when you don't have to. For example, if a company asks for your Social Security number, ask them why it's necessary for them to have it. Unfortunately, you will have to give your number to financial companies and utilities. However, most businesses don't need it. Also, don't give out your birthday unless absolutely required to by law. If identity thieves can match your Social Security number to your birthday, you are a prime candidate for identity theft.
6.) Install Comprehensive Internet Security Software
All of your computing devices should have antivirus software and a firewall to prevent hackers from stealing your personal data. Many devices come with built-in virus and malware protection. For example, computers running on Microsoft come with Windows Defender and the Windows Firewall. Chromebooks receive security software updates for five years after their manufacturing date. You can also purchase third-party antivirus software if you aren't satisfied with what is installed on your device.
7.) Regularly Change Online Passwords
Finally, you can cut your risk of falling victim to tax identity theft by regularly changing the passwords to your online accounts. For example, if the password for your online bank account became compromised, a hacker could steal your Social Security number. Just make it a habit to change your password every 90 days (which is what cybersecurity experts recommend).
In short, there are (currently) no full-proof ways to prevent tax identity theft. However, you can dramatically reduce your risks of falling victim by filing your tax return as early as you can.
You should also monitor your credit report and protect your personal information. Review your Social Security earnings to ensure an identity thief isn't using your Social Security number to report earnings. Never give out personal information that you don't have to. Don't use any computing devices without internet security software and a firewall, and protect your personal data held in online accounts by changing your passwords often.
OWE BACK TAXES OR HAVE TAX PROBLEMS?
It’s important to note that only experienced firms like ours are able to handle tax debt cases and tax identity theft cases since negotiating with the IRS requires specialized skills that often fall outside of the scope of most conventional accounting, tax, and tax law firms.
Our firm specializes in tax problem resolution. We have CPAs, EAs and attorneys who can represent you before the IRS. We serve clients virtually so don’t hesitate to reach out. If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem.
Filing Your Taxes When You Know You'll Owe Money to The IRS
As we wrap up the year the last thing most people are thinking about is their taxes. But planning ahead can have a serious impact on your tax bill next year, especially if you know you’ll owe taxes.
In this article, we’ll talk about some steps you must take if you know you’ll be owing taxes to the IRS or state.
Note: If you already have tax troubles or owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief, file years of unfiled tax returns, and sometimes settle their tax debt for a fraction of what’s owed.
Report All Your Income
One of the biggest reasons people get in trouble with the IRS is their failure to report income. Oftentimes it’s an honest mistake and they simply forget about income they’ve made throughout the year.
Did you take on a consulting gig? Your client might have filed a 1099 reporting your income.
Did your savings and investments earn interest? You’ll likely need to report that income as well.
The stock market has been on a wild ride, and breaking records despite COVID-19. If you sold stock and cashed on on the gains, these gains are reported to the IRS and it means that a lot of Americans might get an unexpected tax bill.
As the year wraps up, it’s wise to take inventory of where your income came from this year so you can stay on top of any tax forms you might get outside of your normal W2.
Run The Numbers Ahead of Time
Some people like surprises but when it comes to taxes, it’s best to avoid them.
You do not have to wait for tax filing season to estimate how much you might owe. Be proactive about consulting with your tax advisor and estimate your tax liability based on how you did for the year.
They’ll be able to suggest tax strategies before the year ends that can save you thousands of dollars on your tax bill.
Set Money Aside to Pay Your Taxes.
Taxes are inevitable. If you know for certain you’ll owe money to the IRS but don’t have the money to pay all of it up front, it’s best to set at least some money aside early so you can pay as much of your tax bill upfront as possible.
The IRS can be more lenient if they see you’re trying to honor your responsibilities and settle your tax debt.
Learn About Tax Relief Options
The IRS has the authority to levy your bank account, garnish your paycheck and seize your assets if it has to, but they also have many tax relief options to help taxpayers in need.
Things like settling your tax debt for a fraction of what you owe, installment plans, penalty abatements, and more, can all be viable tax relief options depending on your situation.
If you owe money to the IRS and can’t afford to pay, you have options. It’s best to reach out to a tax relief firm like ours to learn more about them.
Don’t talk to the IRS, talk to us first.
If you do get hit with a surprise tax bill and lack the money to pay it, you need to settle your tax problem as soon as possible. The IRS wants their money, and they have unbridled authority to get it, so simply avoiding the tax bill will not make it go away, but make it worse. A lot worse.
However, dealing with the IRS is often intimidating for most taxpayers. Talking to the IRS and trying to resolve your own tax problem is like going to court without a lawyer, you’ll most likely get crushed.
A tax resolution firm like ours has years of experience helping taxpayers just like you resolve IRS and State tax problems and negotiating the best deal on your behalf. If you owe the IRS money either for 2019 or prior years, contact us now for a consultation to learn about your options.
The good news is the IRS has several debt settlement options including their Fresh Start Initiative and is generally willing to settle with taxpayers who have been blindsided by a surprise tax bill and can’t pay it off in full.
Hopefully, tax filing season will bring the big fat refund you are expecting, but it is important to be prepared for the unexpected. The new tax bill has unleashed a host of unintended consequences, including smaller refunds and surprise tax bills. By being prepared, you can reduce the pain of a surprise tax bill, so you can get on with the rest of your life.
Do You Need A Tax Attorney if You Owe Back Taxes?
If you owe back taxes you might think you need a tax attorney, but that’s not necessarily always the case. Just like hiring a traditional accountant to try to resolve your tax debt might not be the best choice, hiring a tax attorney, who doesn’t specialize in tax resolution might be the same thing.
When you owe the IRS back taxes, it’s best to have the right tax relief firm representing you so you can get the best result possible. Don’t try to face the most brutal collection agency on the planet alone. You’ll be sorry you did.
In this article we talk about some of the differences between a tax attorney and someone who specializes in tax relief and IRS negotiation.
Note: If you already have a tax problem and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief, file years of unfiled tax returns, and sometimes settle their tax debt for a fraction of what’s owed.
What Do Tax Attorneys Do?
Tax lawyers help businesses and taxpayers with a number of tax related issues such as;
- Legal issues pertaining to taxes
- Corporate tax matters
- Starting up a business and entity formation
- Taxable estate matters
- Tax controversy and tax negotiation (only if a tax resolution specialist too)
Tax attorneys work on both the state level and the federal level. Though some tax attorneys might be able to negotiate with the IRS to settle your tax debt, not all tax attorneys specialize in tax controversy and resolution, nor do they have the experience to do so.
The biggest and most important difference between a regular tax attorney and someone who is a tax resolution specialist, (who’s a CPA, Enrolled Agent or attorney), is regular tax attorneys specialize in transactional tax planning. Their work generally includes minimizing taxes on a go-forward basis. A tax resolution specialist is someone who can help resolve your back tax issues on amounts already owed, or will be owing, to the IRS/State.
It’s important to ask what type of tax matters they handle before engaging a tax attorney to solve your tax debt. Most CPAs and Enrolled Agents, who are tax resolution specialists too, can be just as effective as an attorney that has experience in tax resolution matters.
Are tax attorneys accountants?
The short answer is no.
They both work with taxes, yes, and they both have a background education in accounting, but tax attorneys focus on the legalities of taxes, and their goal is to help you understand and navigate legal matters as they relate to taxes.
They do not generally help you to prepare your tax returns unless they specialize in tax relief and specifically help you catch up on years of unfiled tax returns.
Additionally, while tax lawyers are always legally bound by confidentiality policies, accountants and CPAs are not bound by the same rules because they are not all subject under the same laws.
Common Reasons for Hiring a Tax Attorney
Common reasons why people seek out the assistance of these professionals include when:
- They need legal tax advice for business purposes
- They are faced with complex or criminal IRS matters.
- They are dealing with estate-related issues.
- They need to file a suit against the IRS.
You can consult a tax attorney either before you run into any problems in order to avoid any potential problems in the future, after a problem has already arisen, in which case they will help you to sort things out and get you back on the right track and where you need to be.
OWE BACK TAXES?
It’s important to note that only experienced firms like ours are able to handle tax debt cases since negotiating with the IRS requires specialized skills that often fall outside of the scope of most conventional firms.
Our firm specializes in tax problem resolution. We have CPAs, EAs and attorneys who can represent you before the IRS. We serve clients virtually so don’t hesitate to reach out. If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem.
Did You Know You Might Owe Taxes On Debt That's Forgiven? Here’s How It Works.
When you owe creditors money that you can't afford to repay, sometimes you may be able to get the debt forgiven or otherwise canceled. When this happens, you no longer owe your creditors the money that you used to owe them.
The IRS, however, usually treats such canceled debt as income that you've received. Income that you could owe taxes on. If you fail to report it or fail to pay your taxes on the cancelled debt, you’ll end up owing penalties and interest and over time, that could be just as big of a hassle as your original debt.
Note: If you have any tax trouble or owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief, file years of unfiled tax returns, and sometimes settle their tax debt for a fraction of what’s owed.
When Do I Not Owe Taxes On Forgiven Debt?
In some cases, you may get an exemption and there are some circumstances in which you won't owe taxes.
Your debt is discharged through bankruptcy proceedings:
If you are in serious financial trouble, you may file for bankruptcy and have your debts discharged by the court. Such debts, while they are forgiven, are not considered taxable.
You're insolvent:
When you are able to settle with a creditor by paying them less than you owe them, your financial situation may be bad enough that you owe, in general, more than you own. If you are considered financially insolvent in this way by the IRS, you may have either part or all of your debt excluded from taxation. If you believe that you may qualify for insolvency exemption, you should hire a tax resolution professional to help make sure.
A canceled debt from friends or family:
If you borrow from friends or family and have them forgive the debt, the money forgiven is considered a gift, and is not taxable income.
Tax-deductible interest:
If debt that is forgiven includes interest that is tax-deductible, the interest component does not need to be reported as taxable income. Discharged student loans are also usually exempt from taxation.
Including the forgiven debt in your tax return
If you don’t tell your tax professional about the forgiven debt, in most cases, you won't know about paying taxes on forgiven debt until you receive a notice in the mail about it. Usually, a creditor who forgives you over $600 sends you a 1099-C form stating the amount forgiven. If the debt forgiven is exempt, you may need to fill out a Form 982 to state how much should be exempt, and why.
What do you do if you pay taxes on forgiven debt that should be excluded?
If debt forgiven is actually exempt from taxes, but you still pay, you're allowed to amend your tax return for three years. You simply need to file Form 1040X, and mention your exemption on Form 982.
Working with forgiven debt can be complex. It is usually a good idea to hire a tax resolution professional to work out the details.
OWE BACK TAXES?
Our firm specializes in tax problem resolution. We serve clients virtually so don’t hesitate to reach out. If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem.
