Partial Payment Agreements: If you can’t make the minimum payments of the Installment Agreements described in the previous blog (“Settling IRS Tax Debts”), you may want to look into this.
- Good things:
- The payment plan is based on what you can afford after taking into consideration your essential living expenses.
- It has the advantage of a longer repayment term.

- But be aware:
- The IRS may file a federal tax lien, which could affect your credit rating.
- You must report your average income and living expenses for the past 3 months.
- You must provide paystub statements and other supporting documentation.
- The IRS routinely re-evaluates the terms every two year to see if you might be able to pay more.

“Non-Streamlined” Installment Agreement
- This choice is a good way to go if:
- Your tax balance due is over $25,000
- You need a repayment term of more than five years
- You don’t meet any of the criteria for the Streamlined or Guaranteed Installment Plans

- But again, be aware:
- This route will most likely result in a federal tax lien, and there will be financial papers that have to be supplied to an IRS agent so they can analyze what‘s the most you can afford to pay each month.

In addition to these Installment Agreements, there are three other options for setting your tax debts:
- Offer in Compromise
- Not currently collectible
- Filing Bankruptcy
We’ll deal with Offers in Compromise separately in the next blog, but here’s a quick overview of the other two:
Not Currently Collectible is an option if you are unable to pay your tax liability, and feel that collection activity by the IRS would create an economic hardship for you. These are the big issues to be aware of:
- You must supply ample supporting documentation.
- The IRS will compare your monthly gross income against what they consider allowable expenses to decide if you qualify.
- If you achieve this status, then all collection activities (including levies and garnishments) will stop for as long as the status remains,
- However, the IRS will review your status every 18 to 24 months to see if it is still warranted.
- Be aware! Frivolous or fraudulent claims in an attempt to gain this status carry severe penalties.

Bankruptcy: There are five criteria that have to be met regarding discharging your tax debt with bankruptcy. These have to do with:
- when the tax return due date was,
- when the return was filed,
- how old the tax assessment is, and
- making sure the taxpayer is not fraudulent or guilty of tax evasion.

It’s daunting, isn’t it? Choosing the right tax strategy can require professional analysis of your situation – for more help with these matters, visit: www.millertaxlaw.com

The notices are piling up, and you’ve reached the place where you’re thinking the un-thinkable: it’s time to negotiate with the IRS.  Don’t panic; sit down, take a deep breath, and read on.  Whatever you are trying to resolve, the approaches listed here will help…

The Oil Can is Mightier than the Sword.

Though you may be shaking in your boots, or angry as a hornet, don’t bring anguish or a bad attitude into the room with you.  Put on a happy face, and pledge to keep a cooperative attitude.  You will find that most IRS agents are ready to find a solution that benefits you both, so assume the best.  If you run into a condescending, surly agent, ask the manager if you can work with someone else.

Solutions, Solutions, Solutions.

In addition to bringing spotless documentation, your job is to come with a solution prepared.  And do yourself a favor – learn some of the IRS language.  For example, ask for penalties to be ‘abated’ rather than ‘cancelled’; and get familiar with phrases like “reasonable cause”, “currently not collectible”, or “ordinary and necessary” business expenses etc.

Promises Promises.

Only promise what you can deliver.  Don’t agree to pay more than you can afford – this is just setting yourself up for failure.  Also remember that in addition to your negotiated settlement, you still need to pay this year’s taxes, so be reasonable.  Practicing saying ‘no’ politely in many different ways, and keep those phrases at the ready!

Avoid the ‘Xerox-ballet’.

Get your papers in order.  This means no papers spewing out of torn folders, no receipts tumbling to the floor at a crucial moment.  Know what information you need to present, put it into category folders, and bring it in a nice tote. Now, that’s a great first impression.

Put a lid on it.

IRS agents are specialists in drawing out information.  Be truthful, but keep your responses short, succinct and to the point.  There’s no sense elaborating about your personal life – that may lead down the wrong road.

Scout’s Honor

Always tell the truth.  Even ‘white lies’ will trip you up eventually, and will then cast doubt on everything you’ve said.  Don’t hide assets, don’t try to cover things up. It’s not worth the worry, and if you’re caught you could end up in trouble that you can’t negotiate your way out of.

Be a seeker.

Come to them before they come at you. If you are in trouble, tell the IRS right away.  Speaking up ahead of time may get you the extensions that you need – and by the way, the collection department notes in your file whenever you or your representative calls.

Get a grip.

Sit quietly in good humor.  And stay seated – no rushing around the room, agitated, flinging your arms around.  Above all don’t cry; the IRS does not appreciate drama.  Remember that every agent writes down notes of how the interview went – you don’t want ‘hysterical’ to be at the top of the list for the next agent to see.  If you feel out of your league or disrespected, end the interview and tell the IRS that you will be seeking representation and that you’ll get back to them soon.

Professional got your back?

Just filing your year-end taxes can be complicated enough!  For complex tax issues where you need an educated opinion and guidance, seek a qualified tax professional.  They have the knowledge and experience that can make a big difference in the outcome of your case.

For more information and assistance, visit: www.millertaxlaw.com

Or does it sound too good to be true? It may be; watch out for companies using this line to get your business.  Let’s take a realistic look at this tax debt payment option…

 What is it?

An ‘Offer in Compromise’ allows you to settle your tax debt for less than the full amount you owe.  Every tax payer would love that, right?  Correct, and that’s why this is a time-consuming, difficult option to pursue.  Note that the ‘compromise’ part of the equation is that you negotiate the settled amount.  With the IRS.  Directly.  And by the way, there is actually no legal right to have a valid tax bill reduced by the IRS; it is entirely a matter of government discretion.  So, in the end, it’s not at all a matter of how much you think you should owe, but rather how much they believe you can pay. In the words of the IRS: “We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.”

So who qualifies?

At its heart, this program is about creating a tax debt compromise when it is in the best interests of the taxpayer and the government.   To qualify, the burden of proof is on you – there are three things that you could show:

 Reason for doubt that the tax bill is correct. (‘Doubt as to liability’)

 The debt is not likely to be able to be collected. (‘Doubt as to collectability’), or

 There are special circumstances that would make the collection of the debt ‘create economic hardship, or be unfair and inequitable’.

Get Real.  It’s not an easy task to apply for this, although the IRS does give you workbooks and tools and calendars and calculators.  Most people fall into the second category above – if that’s where you’re headed, be prepared…

Since this is an Offer, you use definite criteria to figure out what you are offering.  The IRS states that the amount must be equal to the “realizable value” of your assets, plus the amount of money they could take from your future income.  Confused? Here’s the formula – your offer should reflect:

 ‘Net realizable equity in assets’: that means what the IRS could get from selling or seizing your stuff – your home, your car, your bank accounts and investments , etc., plus your

 Monthly disposable income minus allowable monthly expenses. (And P.S., what the IRS calls ‘allowable’ expenses may not include things like college tuition or credit card payments.)

Be prepared.  You’ll have to come up with boatloads of financial documentation, such as pay stubs, bank records, vehicle registrations, real estate information, and much much more.  It can be an exhaustive process and very time-consuming, so take a deep breath and start collecting info.  Furnishing all the data and observing the deadlines are the only way you’ll have a chance to succeed…incomplete information and errors in the filings are some of the biggest reasons for rejection of the requests.

Get out your checkbook.

And by the way, the IRS now requires all applicants to pay a non-refundable $150 filing fee.  And they require an up-front 20% non-refundable payment be submitted along with the Offer of Compromise, unless certain situations apply. Do the math so that you are prepared.

Check it out. Dealing with tax debt is one of the most difficult things that you can do.  If you decide to use the help of a tax professional, be sure to check their credentials and avoid the infomercial scams.  For more information on qualified professional help, visit: www.millertaxlaw.com.

In our next Blog, we’ll cover the other three options for settling your tax debts:
Offer in Compromise
Not currently collectible
Filing Bankruptcy
As with any tax problems, taxpayers should seek the advice of a licensed tax professional. For more information, see: www.millertaxlaw.com

Paying your Tax Debt: Tax Settlements

So you’ve found out that you owe back taxes – now what?  First, sit down and take a deep breath.  Next, read on to get an overview of the possible approaches to your situation.  Remember, the IRS has 10 years to collect any tax due, so you’re going to have to deal with this sooner or later.  Sooner is best.  Start with these steps:

Decide if you will do this yourself, or hire a tax professional.

• If you owe over $25,000, you are required to hire a tax professional to help you through the process.  However, with the dizzying array of choices, forms, and information that you will have to come up with, you will most likely benefit from hiring a professional, no matter how much you owe.
• Ask about their credentials.  A tax professional needs to be a CPA, Enrolled Agent, or Tax Attorney.  Those are the only professionals allowed to practice before the IRS.

Examine Prior Year Returns.

• Check your back tax returns and see if you can reduce your liability for any previous year’s taxes.  Reviewing those returns will make sure that they are accurate, and that no deductions were overlooked.  This is an area where a tax professional can save you both time and money, both through quickly reviewing your returns, and filing amended returns if needed.  Amending returns requires substantial paperwork and reprocessing, and there must be lots of supporting documents or you risk an audit. 

There are 5 strategies for getting out of tax debt – here is an overview to get you started (and we’ll go into more depth in the next Blog):

We’ve talked in previous blogs about the kinds of deductions that you report in a separate part of your Form 1040  (the Schedule A).  Those deductions need to be itemized, or listed separately.   In the AGI (Adjusted Gross Income) section on the first page of the Form 1040, these deductions appear directly on the tax return.  (Sometimes they are called “above the line” deductions, since they appear above the line on the tax form in the Adjusted Gross Income section.)

Who can take what?

This area can be a little tricky for DIY tax filers, so it’s a good thing to work with a qualified Tax Professional to make sure that you are eligible for the deductions and are taking all (but not more!) than is allowed.  Some of it concerns specialty groups that you’ll know if you fit into – you need to wake up and pay attention to some potential deductions if you:

• are a Teacher or Educator
• are a Performing artist (along with some other qualifying professions)
• have a Health Savings Account
• have an IRA
• are a Student with loans
• paid Tuition and fees
• Moved last year
• are Self-employed
• had an Early Withdrawal Penalty
• Paid Alimony
• Did Jury duty
• Take part in Domestic production activities

Line 37 – It’s a number that you need to know!

These examples should give you a good idea of why you want to pay attention to lines 23 – 35 of the Form 1040.  Not only does it reduce the tax amount that you will have to pay, but this AGI number is also used to figure out:

v  Your eligibility for other financial benefits; such as your IRA contribution deduction limits, social security benefits, and the percentages of things you claim on your itemized deductions, (for instance medical expenses).  PLUS, in some states they base your State Income Tax on your AGI!  So…do it now, check it out with a professional, and do it right!

For more info contact Litchfield County tax attorney at:  Http://www.millertaxlaw.com/  Click on the Blog tab or explore our website.   

It’s a fantasy many of us have at tax time: we hear about the mystical form #8829: ‘Expenses for Business Use of Your Home’, and we start to dream…we say to ourselves “I have that little desk in the kitchen where I work on reports”, or “I make phone calls in the evening from the breakfast nook”.  But instead of grabbing your pencil, take a deep breath, and read on…

‘Business Use of Your Home’ is a very real, and allowable, deduction on your taxes IF you meet certain stringent requirements.  It is also a somewhat famous ‘red flag’ for an Audit, but if you do your homework (get it? home -work), you can, and should, take the deduction.  It’s all about Qualifying.  Just like qualifying for a sports activity, it takes patience, careful work and diligence to see if you qualify.  (And careful work to keep all the materials you’ll need to support your claims…)

You can do it -

v  Only if you qualify

And you can claim -

v  Only the expenses you are entitled to

You will need to -

v  Document everything

Only if you Qualify: here’s some examples of the big hurdles -

• You must use that part of your home ‘Regularly and Exclusively’ for business purposes.  (So, that means no room where you can have any fun or entertain: if you have a sofa-sleeper, kid’s toys, sauna, big-screen TV and DVD player, etc., in your ‘office’, it’s probably not going to fly.)  It also means that any activity in that area of the house must be used ONLY for business, not for personal use, and not just occasionally, but all the time.
• If the Office is inside your home, it must be your principal place of business, or the place where you meet with clients or customers.
• If you are a telecommunter?  You have to meet the above criteria, plus work at home at your employer’s convenience. (Not because you like working in your jammies…)

Only the expenses you are entitled to:  for this info, you need to become very familiar with your house…

• Get out your measuring tape. Many of the expenses are based on the percentage of the house which is used for business. Therefore, you have to measure the space you are claiming, and know how much square footage your house is.  (Never thought taxes would require a measuring tape, did you?!)

Buckle your seatbelts if you are going to embark on this quest!  On top of the difficulties of knowing whether you qualify, you also might have to deal with things like: the depreciation of your home, which expenses are allowable and which not, the carryover of expenses, what happens when you sell your home, and a whole host of other details!

So in this instance, it truly is worth looking into a qualified Tax Professional for help with this filing.

For more info contact Litchfield County tax attorney at:  Http://www.millertaxlaw.com/  Click on the Blog tab or explore our website. 

Deductions are GOOD.  Deductions REDUCE the amount of your income that gets taxed. Let’s say that again!  Deductions reduce the total amount of your income on which you have to pay taxes.  See, Deductions GOOD.

Schedule A – Itemized Deductions.

The Deductions we’re discussing here will mostly show up on this form, the Schedule A.  You have a choice as to whether to Itemize a list of your Deductions, or whether you’d rather just take the set amount that the Congress thinks is a good round number for you to claim (called the Standard Deduction).  The only way to really know which is the better choice is for you is to run the numbers yourself.  Do it!  Then you’ll know for sure that you’ve claimed everything that you can, and have reduced your taxable income as much as is legally possible.

About finding and documenting all your deductions on Schedule A:

Remember Filing?   Now is when you’ll be thrilled that you did all that work.  (You didn’t do it? Hmmmm.  Well, no time like the present — for help, see “…”).

What kinds of things are you looking for and what will you do with them?  Here are a few examples -

• Add up all your allowable medical expenses. If they meet the allowed criteria, you’ll be able to deduct them.
• Look for State and Local taxes paid: for instance things like Property taxes, car license and registration fees.
• Did you keep all the records of your Charitable Contributions? Add them up!
• Mortgage Interest…

…for instance,  if you own a home, you will have received an “Annual Mortgage Statement” that will tell you how much interest you paid on the loan last year.  This last number will make you happy, because that amount is a DEDUCTION.  See how it works?

Go on, get started.  Save yourself some money.  And remember, every moment you spend on this you are PAYING YOURSELF.

[PS - Below the ‘Income’ section of the 1040, you’ll see ‘Adjusted Gross Income.’   Although not technically Deductions, this is a list of things that can Reduce your Gross Income.  In most cases, to know if you are able to claim any of these adjustments you’ll need to use the Worksheets provided by the IRS (http://www.irs.gov/pub/irs-pdf/i1040gi.pdf, starting pg 28), or better yet, use a Tax Professional to guide you through the maze.]

For more info contact Litchfield County tax attorney at:  Http://www.millertaxlaw.com/  Click on the Blog tab or explore our website.

]]> http://www.millertaxlaw.com/form-1040-deductions-what-are-they-and-can-they-really-make-a-difference/feed/ 0 http://www.millertaxlaw.com/1040-tax-form/ http://www.millertaxlaw.com/1040-tax-form/#comments Thu, 01 Mar 2012 15:28:30 +0000 admin http://www.millertaxlaw.com/?p=476 “Form 1040….” Gulp.  The name alone can strike fear in your heart.  Well, at least dread.  But what is it really?  It’s merely a tool for you, a way to figure out specific pieces of information.  More specifically, the way to confirm with the IRS:

• Who you are, where you live, what you do
• How many dependents you have
• How much money you made, and if any tax was withheld
• If you have any deductions or tax credits

So, the (literal) Bottom Line of the Form 1040 is not information to be feared.  It’s your chance to make sure that all the info that’s been collected about you is accurate, plus it allows you to claim any deductions and tax credits you deserve.  It also gives you a heads-up on any REFUND coming to you, or any TAX DUE.  Remember the old adage ‘knowledge is power?’  Believe it, come Tax Time.

Remember the ‘Tax Mail’ that you collected and organized? (You did that, right?  If not, see: ”Tax Preparation Tips”).  Those stacks you made will help you tackle the Big Important Questions:

• The first section of the 1040 is Information about you – your name, where you live, dependents.
• The Income section is next: that’s where your W-2 form comes in, line 7.  Ahem, note that after line 7, there are 17 more lines – yep, 17 – asking you to report other kinds of income.  That’s where some of the other Tax Mail you’ve received, saved, and organized will come in handy.  You’ll need the forms for types of income such as: Dividends, Alimony, Capital Gains, Distributions from things like IRA, Pensions and Annuities, Rental or Farm income, Unemployment and Social Security…and the list goes on.  That’s why having a Tax Professional take that information and complete your form can be a life-saver!  It’s also why you are now proud of yourself for keeping all that Tax Mail organized.

If you’re doing the adding-up for yourself at this point, you may be saying to yourself ‘Really?  I made that much money? Oh nooooooo!”  But don’t panic, in the next blog we’ll walk you through the fun part – Deductions that allow you to Adjust  (as in, make lower) that Total Income number.

PS –– for more info contact Litchfield County tax attorney at:  http://www.millertaxlaw.com/past-due-income-tax-returns/

• File.  First of all, before jumping in, file.  That’s right, file.  As in filing papers – you know, taking receipts and putting them it in a file folder.  Or, if you don’t have a filing system in place, at least find all of your 2011 papers and put similar ones in piles together.  Here’s why: you are about to use much of that information, and pawing through stacks of loose papers repeatedly is a huge waste of your time.  Look, you’ll have to go through those papers at least once during the course of doing your taxes, so do it first, and be done with it.  Go on, get that bag of receipts hiding in the coat closet (you know who you are) and go for it!
• Grab your checkbook(s) and personal calendar from 2011.   Put them in the Tax Box and keep that box handy. Now is the time to open those pesky envelopes with the perforations on each side, along with all the other pieces of mail.  Take the papers out and create piles of each kind of document  (for example, ‘1099-INT, 1099-OID, 1099-DIV’ etc.) and staple them together.
• Now it’s time for a little trip down memory lane, circa 2011.  You have to think back and ask yourself some questions, like:
  • ‘did my name or address change, or did I get married?’ (see, this is easy…)
  • ‘did I start a business or incorporate?’
  •  ‘did I sell my home?’
  • ‘did I take money from, or put money into, a retirement plan?’
  •                         ‘did I buy or sell stocks or bonds?’
  • ‘did I have tuition expenses?’

This short list shows you the kinds of things that you will need to know, find paper documentation for, and be ready to enter when the time comes.   Everybody needs slightly different information on their returns, but there are some basic questions that everybody needs to ask (post your request here, and we’ll send you a general list).

Now that you have all your documents together, you will next start to tackle the real issues.  By the way, you are doing all this work – organizing your information – so that you’ll be able to see if the end result is going to be ‘Party!’ time, or ‘Find-some-money-to-pay-taxes’ time.   Stay tuned for the next blog!  See more info at Litchfield County CT tax lawyer http://www.millertaxlaw.com/