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Tax Debt Lawyer vs. Accountants for Debt Elimination

May 24th

With taxpayers owing historic levels of IRS debt, the search for solutions is more frantic than ever. There are almost as many qualified professionals that work with IRS debt as there are solutions to conquer it. Aside from IRS debt elimination programs, taxpayers can choose from Enrolled Agents, Certified Public Accountants, and Tax Attorneys to settle their situation.

Why Tax Debt Lawyers are the Best Solution

On the onset, it might seem as though these professionals are very similar. After all, knowledgeable accountants will be able to provide tax advice and strategies for both individuals and businesses just like a tax debt lawyer. Furthermore, qualified accountants are even allowed to represent clients in cases with the United States Tax Court. However, this is where the similarities end, as a tax debt lawyer emphasized the studying of case law, legal nuances, and specialized in tax litigation and other liability issues. While both a tax debt lawyer and accountant can help taxpayers determine a strategy to handle IRS debt, the attorney is far more qualified to handle cases in court and deal directly with the IRS.

Most people filing income taxes go straight to their accountant to save time and money. This is a perfect option for people who want to take preventative measures to avoid any IRS debt and stay financially healthy. However, for those who have more complex situations and are reacting to litigation or liability issues with IRS debt, consulting with a tax debt lawyer would be the wiser decision.

Other benefits of working with a tax debt lawyer include:

Less stress. Going head-to-head with the IRS over tax debt can be stressful, but having a tax debt lawyer to prepare the paperwork, documentation, and other figures needed makes the situation less difficult for you.
Experience. Unlike accountants, a tax debt lawyer is experienced in a court of law defending clients and is more likely to be able to successfully make your case concerning IRS debt.
Knowledge. With a tax debt lawyer, you get the financial wisdom of an accountant coupled with the legal prowess of an attorney.


Payroll Tax Increase Affects Household Budgets

January 9th

On Jan. 1, 2013, Congress approved the American Taxpayer Relief Act of 2012 which was signed by President Obama the next day. While the Holiday season is now over, so is the payroll tax break that expired along with the new agreement in Congress. As a result, Americans this week are seeing a tax on their paychecks rise from 4.2 percent to 6.2 percent.

Planning For Less To Spend

The 2 percent hike means that a person earning $30,000 will receive nearly $600 less this year, someone making $50,000 will receive about  $1,000 less, and someone earning $113,000 will take a $2,200 hit. Economists predict as the year moves forward, and although many saw small salary increases in 2011, disposable income for most households will shrink. There is bright news though that can help you anticipate your 2013 tax debt and offset some of the increase.

As part of the new tax act, the Alternative Minimum Tax patch has been permanently extended, which means 34 million middle-income families can still celebrate the New Year with a $3,700 credit. Other “Tax Extenders” have been approved allowing certain credits to remain in place like:  If you are a teacher, you can still claim up to $250 of classroom expenses for supplies, materials, books and software. College students or parents can once again deduct education expenses related to schooling, including tuition, books and other supplies, up to $4,000.

Previously, taxpayers who had mortgage debt canceled or forgiven after 2012 would be required to pay taxes on that amount.  Under the new law, up to $2 million of forgiven debt is eligible to be excluded from income in 2013.  Increased dependent care credits remain in place that allow you to claim up to $2,100 of your eligible dependent care cost for two or more children. However, if the new tax laws put you in a position of owing more than anticipated, the IRS has several tax debt payment plans to help.


Cancelled Debts and Taxes

March 7th

debt cancellationHaving a debt cancelled by a creditor can be an appealing idea for those experiencing financial hardships. However, there are certain tax consequences that could result in owing the IRS money if you aren’t careful. Knowing about these potential consequences ahead of time can prevent you from ending up in tax debt or owing money on what was supposed to be a forgiven debt.

Debt Cancellation

There are some situations in which a borrower may be fortunate enough to have a debt cancelled by a creditor. Whether the debt is credit card debt, or a mortgage debt, the amount that was forgiven by the creditor is required by law to be claimed as income on your tax return. The only exception being that, since 2007, mortgage debt cancellations have been excluded due to a federal bill. The Mortgage Debt Forgiveness Relief Act has allowed homeowners who had debts cancelled by lenders to be excluded; however, this bill is set to expire later this year.

The best strategy when resolving debts that involve a cancellation of debt is to claim the amount that was forgiven on your tax return, in order to be safe and avoid IRS penalties. When a creditor cancels a debt they are supposed to provide the borrower with a 1099-C form. However, it is ultimately the responsibility of the borrower to obtain this form and file it with the IRS.





Changes For The 2012 Tax Season

January 18th

This year might be the last for consumers and homeowners to talk advantage of a few key tax deductions. Because tax deductions are the main source for lowering tax liability, many taxpayers may find that they owe the IRS come next year. A look at these changes to the 2012 tax code reveals some interesting changes that could affect whether you will carry a tax debt next year or not.

Tax Deductions

Many of the changes to be implemented for the 2012 tax season are taxpayer friendly. The bulk of the changes are offering an increase in deductions to account for the cost of inflation. For example, the personal and dependent exemptions will increase by $100 to a total of $3,800. Standard deductions for all categories will increase by $100-300. Retirement account plan limits will be boosted to $17,000, up from $16,500. Tax bracket thresholds will also be pushed a bit higher to allow for more Americans to qualify for the more affordable middle class bracket.

However, not all of the changes will be taken favorably by many consumers. There will be an increase in the income phase out level for married couples claiming their student loan interest as a tax deduction, making it harder for people paying high interest to qualify for this deduction. One of the most discussed deduction cuts is to mortgage insurance premiums , which will not be eligible to be claimed for a deduction starting in 2012 unless Congress reinstates the deduction before the end of the year.




State Law Collects Back Taxes On Lottery Winnings

December 29th

Only a handful of people are lucky enough to win lottery drawings each year, some of which make millions of dollars in winnings. While many of these people may have struck it rich, a new law could stand in the way of some receiving their money.

Getting Their Fair Share

Legislation passed a new law in Connecticut that requires that lottery winners be checked for back taxes before any of their winnings can be paid out. As of New Years Day 2012, anyone who wins the lottery will have their personal information checked against a list of tax delinquent and back due penalties before any prizes can be distributed. Lottery winners will also be checked for back due child or domestic support payments prior to receiving any winnings. The law is applicable to any winnings of $5,000 or more acquired in the state of Connecticut.

The law came about as a measure to resolve the $400 million in state back taxes that are said to be currently delinquent.  The House Chair of the Judiciary Committee, Gerald Fox says,”  “If someone is lucky enough to win a lottery prize and they also owe back taxes it is reasonable to collect those taxes at that time. This is not just about revenue owed the state, but also about fairness and improving confidence in our tax system.”



Handling IRS Harassment

November 30th

No one wants to owe the IRS money, but many people are suffering with unbearable tax debt that is consuming their lives. To make matters worse, the IRS is very vigilant about collecting their money. Luckily, taxpayers are protected from unfair or abusive tax debt collections thanks to the Fair Tax Collection Practices (FTCP) Act.

Rule Governed

Although the IRS maintains the right to implement wage garnishment and tax liens, they generally follow the typical collection path first. In a sense, the IRS is no different than any other creditor in the sense that they must adhere to strict rules about how they can collect on a debt. Taxpayers should know their rights and what rules the IRS must follow when attempting to collect on a debt. The FTCP requires that the IRS stick to the following guidelines:

  • Do not call before  normal business hours or after 9:00pm.
  • Do not call a taxpayer at an usual time that is inconvenient, such as at work.
  • Do not attempt to collect the tax debt from anyone other than the taxpayer, unless they are represented by a tax attorney.
  • Do not make threats, use violence or intimidation in efforts to collect on the debt.
  • Do not use obscene or profane language when attempting to collect on the debt.
  • Do not misrepresent yourself or the purpose of the collection call to the taxpayer.
  • Do not repeatedly call with the intent to annoy or harass the taxpayer.

The IRS is bound by these rules during collection attempts. Violations of these rules can result in serious consequences for the IRS representative who engages in such behaviors. Taxpayers are urged to contact the IRS or an attorney if they feel they  have been harassed by the IRS.







US Tax Regulations Raise Privacy Concerns in Canada

September 30th

Canada has recently stepped up its opposition to US tax evasion laws by engaging with the American media. Most notably, the Canadian Finance Minister, Jim Flaherty, wrote an opinion piece, which was published in several major American newspapers, complaining that the new regulations are “wasteful and raise privacy concerns.”

Earlier this year, Flaherty had announced that he was in talks with US officials to exempt Canada from the new Foreign Account Tax Compliance Act (FATCA), which requires overseas banks to report any American clients to the Internal Revenue Service. However, the recent letter clearly indicates that Flaherty’s requests for exemption were not met.

Foreign Account Tax Compliance Act Violates Canadian Privacy

Flaherty’s chief argument against FATCA is that compliance would simply turn Canadian banks into extensions of the Internal Revenue Service, thereby creating significant privacy concerns for Canadian clients. In addition, he argues that Canada is not a tax shelter but merely has a large population of dual Canadian-American citizens.

The letter written by Jim Flaherty also takes significant offense with the requirement that dual citizens file tax returns with the IRS, claiming that the little-known law threatens ordinary, innocent citizens with debilitating penalties on supposedly unpaid taxes. Instead of pursuing serious perpetrators, he claims that US resources are misdirected toward those who are simply victims of ignorance.



US Treasury Discusses Cuts to Overseas Taxes

September 23rd

treasury and taxesPresently under discussion with the US Treasury Department is a proposal to eliminate a portion of the taxes levied on overseas profits of American multinational companies. The proposal is a key component in a plan to conduct a general overhaul of the corporate tax code.

In the past, the subject of corporate tax has been a hot topic of debate. US businesses have been consistently pushing for exemption for all overseas earnings from US taxes, arguing that the current system places them at a disadvantage in the global market. Republicans and the businesses they support could be disappointed with the proposed plan, in that it does not go further and eliminate all overseas tax.

Meanwhile, liberals and trade unions have suggested that cutting taxes on overseas income could mean that US business will simply shift more operations and labor overseas. Many feel upset over the amount of unpaid taxes already accrued by American businesses under the current system.

Components of the Plan

The current proposal would create what is referred to as a “rough” territorial system. This system would serve to shelter a certain amount of overseas profits from US taxes. One of the primary issues under discussion at present is which profits would warrant exclusion.

The tax-cut provision is part of a broader plan to restructure the tax code, by simplifying laws and eliminating loopholes. The proposed rewrite could have significant implications for US corporations. Notably, the plan is expected to include a substantial cut from the current 35 percent corporate tax rate, as well as changes to various key tax deductions.


Understanding Religious Organization Tax Laws #2: Tax-Exempt Status

September 23rd

Like many other qualifying nonprofit organizations, churches and religious organizations are exempt from federal income taxes under IRC section 501(c)(3). They are also typically eligible to receive tax-deductible contributions. However, the IRS has very strict rules that govern what organizations may qualify for such benefits. Included among these are the following:

  • The organization in question must be organized and operated exclusively for charitable purposes. This may include activities for religious, educational, scientific, or charitable reasons.
  • Earnings may not be for the personal benefit of any individual person or shareholder. All money must go to the benefit of the organization.
  • The organization may not participate in any political campaigns, or exist to influence legislation in any way.
  • No activities associated with the organization may be in violation of the law or transgress fundamental public policy.

Unrelated Business Income Tax (UBIT)

While the majority of a religious organization’s activities will be tax-exempt, it is common for these groups to also participate in income-producing activities, unrelated to their primary objective. So long as these activities do not constitute a majority of the organization’s activities, they will not jeopardize the group’s tax-exempt status. However, any income-producing activities will be subject to the UBIT, so long as the following three conditions are met:

  • The activity in question constitutes an income-producing trade or business.
  • The trade or business is a regular part or the organization’s activities.
  • The activity in question is not directly related to the organization’s chief directive.

When in doubt, religious organizations should also consult with a qualified tax lawyer to determine if their income-producing activities are subject to tax. Failure to pay tax on any qualifying activities can result in IRS penalties and interest attached to the unpaid tax amount.


Understanding Religious Organization Tax Laws #1: Employment

September 22nd

Congress has enacted very particular tax laws for churches, other religious organizations, and ministers. Churches and religious organizations are typically exempt from income tax and receive other kinds of favorable treatment. However, certain income is still subject to taxes.

Individuals involved in the running of religious organizations should be aware of the rules and regulations of the tax code as it pertains to these groups.

More information can always be obtained from a qualified tax attorney with particular knowledge of this area of the tax code.

Most important is to understand IRS regulations as they relate to employment and payroll. Religious organizations are always required to withhold, report, and pay income and Federal Insurance Contributions Act (FICA) taxes on behalf of their employees.

1. Employment Tax Withholdings.

Employment tax includes income tax withheld and paid for an employee, as well as any withheld FICA taxes paid on behalf of an employee.

Organizations that fair to withhold and pay the appropriate amount may face substantial penalties against the unpaid taxes.

2. Social Security and Medicare Taxes

Federal Insurance Contributions Act (FICA) taxes consist of both Social Security and Medicare taxes. All wages paid to employees of religious organizations are subject to FICA taxes, with few exceptions. Exceptions apply for those wages paid in exchange for duties performed by an ordained or licensed minister of a church, or by a member of a religious order in the service of that group.

3. Unemployment Taxes.

Under the Federal Unemployment Tax Act (FUTA), churches and religious organizations are exempt from paying FUTA tax.



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