What Happens When You Don’t File Your Taxes?

We are lured with the idea of not paying taxes since there are so many taxpayers.You go into believing that this move will be overlooked. Unfortunately, not paying your taxes matters a lot, and believe it or not, the IRS will know. It is then essential to know what the consequences for not filing your taxes are,  what you need to do if you were not able to do this obligation, and where to go for help.

For the government, non-payment of taxes is considered stealing and you could be penalized for this. Levels of penalties differ depending on your tax status:

* Penalties for filing your taxes late
* Not filing for taxes at all
* Penalties for not paying your taxes

Late filing gives the least overdue fees. A mere 5% monthly interest is added to your total tax due. The IRS, on the other hand, can charge you up to a maximum of 25% as penalty.  Let me illustrate this through an example.  Tax returns filed on June when it is due on April 15 are charged with 15% interest.

What options do you have if you still have not filed your tax return and April 15 is already fast approaching?

You may contact the IRS if you feel you require additional time in filing for your taxes. One way of doing this is by filling out Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Once the request is approved, you are allowed until August 15 to take care of your tax returns. If this period is inadequate, filling out Form 2688 gives you additional time. It is imperative that you file for an extension as doing otherwise automatically gives you the 5% interest.

It’s important to note that requesting for an extension doesn’t give you more time to pay your taxes.  By April 15, you must pay for at least 90% of your dues. If you forget to do this, you will be given a penalty of 0.5% per month. This scenario then brings us to the next classification of penalty, which is not paying what you owe.

Certainly, not paying the whole amount is better than not filing at all.  Again, let us demonstrate this by saying that you owe $5000. Paying only $1000 results to a mere $20 charge, which is 0.5% multiplied by $4000. Thus, it is important that you file and pay your taxes whatever way you can.

The IRS may make use of more severe measures should the agency see that you persist to be a delinquent tax payer. First, the penalty increases  1% monthly.  The IRS can also compel you to mortgage your assets or get a loan. Third, they can use more rigorous collection techniques like wage garnishment and levying bank accounts.

Before situations get that bad, ask for IRS help.  You will realize that they are not the Big Bad Wolf that they were portrayed to be. You may  ask for additional time to pay your taxes (from 30-120 days). A favorable payment arrangement may also be set up. IRS help is available in many forms:  installment plans, temporary delays, or Offer in Compromise. Visit the IRS website for additional information on these alternatives.

The most serious penalties are imposed to those who do not even bother to file for their taxes. This situation will incur you large amounts of money, aside from making it hard for you to ask for IRS help. You will be charged with 5%-25% of the total taxable amount monthly. Let’s take a person owing $5000 and is already 5 months late for filing as an example. Total penalty is 5% times 5 times $5000. This costs you another $1250, more than one-fifth of the amount you originally owe.

The IRS, however, extends its hands to those who consistently refuse to file for their taxes.  One, a person may be sent an accomplished return (duly filled-out by the IRS) with the bill and applicable fees. This move, on the other hand, forfeits the taxpayer’s deductions due to him. If this effort of the IRS proves unsuccessful, then it can exact other measures like pressing for criminal and civil charges.With all these serious consequences, it is important to ask assistance from the IRS so you can explore for favorable alternatives before your tax obligations goes awry.

The Scope of IRS Jurisdiction

To avoid paying taxes, protesters often attempt to question the IRS’s reach because of its unclear jurisdiction. To avoid suffering IRS issues in the future, take a look at how wide the jurisdiction of the Internal Revenue Service extends.

Jurisdiction is the power provided to political leaders or legal bodies that allows them to handle legal matters and enforce punishment. The word is commonly heard on television shows or movies dealing with crimes.

The IRS is a little more amorphous because it has jurisdiction over all the taxpayers in the US, as well as people who earn any income in the US. If you don’t understand that you have obligations to pay taxes as a taxpayer, you’ll definitely encounter IRS issues.

The IRS, according to Title 26 of the Code of Federal Regulations:

“The Internal Revenue Service is a bureau of the Department of the Treasury under the immediate direction of the Commissioner of Internal Revenue. The Commissioner has general superintendence of the assessment and collection of all taxes imposed by any law providing internal revenue. The Internal Revenue Service is the agency by which these functions are performed.”

The IRS has jurisdiction over you as a taxpayer if you’re a United States citizen earning money or living in foreign countries, a non-resident earning money in the US, or a resident of the US. If you do not pay taxes on property, earnings, capital gains, etc., you will have IRS issues.

There are people who do not fall under the jurisdiction of the IRS. In this paragraph from the case of Economy Plumbing and Heating Co. vs. The United States, it states that non-taxpayers are excluded from the IRS’s rules and regulations:

“The revenue laws are a code or system in regulation of tax assessment and collection. They relate to taxpayers, and not to non-taxpayers. The latter are without their scope. No procedure is prescribed for non-taxpayers, and no attempt is made to annul any of their rights and remedies in due course of law. With them [non-taxpayers] Congress does not assume to deal, and they are neither of the subject nor of the object of the revenue laws.”

You should determine if you’re a non-taxpayer or not to avoid IRS issues. You can look at the IRS website or on your specific state’s tax website.

Many arguments are regularly made by tax protesters that try to question the jurisdictional powers of the IRS. Some claim that the 16th Amendment was never ratified properly, so the IRS is unconstitutional. The 16th Amendment providing the authority to lay and collect taxes on income to Congress was voted by three-fourth majority so it was officially ratified.

Another argument is that the IRS isn’t a government agency at all, and therefore, has no jurisdiction or power over anybody. This is a ridiculous argument because the Secretary of the Treasury has authority to maintain and enforce internal revenue laws. Based on this authority, the IRS was founded. Arguments such as these can lead honest people to suffer serious IRS issues. The IRS does, indeed, have jurisdiction over taxpayers.

Failure to pay taxes or declare your income accurately can lead to serious IRS issues. If you are a taxpayer, you are under the jurisdiction of the IRS.

Common IRS Audit Flags

Two things in life are guaranteed to make most people wince: root canals and IRS audit. If you take care of your teeth and steer clear of particular factors, you will be able to steer clear of a root canal. Similarly, if you take care of your financial health and steer clear of certain practices, you may be able to avoid an IRS audit. The IRS may have to audit you if many red flags appear.

The IRS decides the accuracy of your tax returns in an audit. Certain deductions should be proven.

You may be surprised by these IRS audit flags:

* One flag for IRS auditors is claiming too much donations to charity. If the standard charitable donation is $500 and you list $2000, this puts you out of the average, which raises the likelihood that you will be flagged for an audit. You must keep your receipts and be able to prove all $2000.

* Those who are self-employed may be flagged for too much deductions. The IRS is very cautious to look for these types of deductions.

* You’ll be closely scrutinized if you make over $100,000.

* Last year’s and this year’s returns are inconsistent. These can be as simple as a name change because of marriage, but inconsistencies do stick out and are going to be noticed.

* Considerable changes in income. For example, if you made $60,000 last year but you declare that you earned $20,000 this year, the IRS will wonder and target you for an audit. Your income may have changed for several reasons. You should be able to prove it.

* Incomplete tax returns are a flag for the IRS, too. You’re prone to be audited if your returns have incomplete or unreadable answers.

* Inconsistencies between state and federal returns.

You need to fly under the radar and truthfully declare deductions to avoid an IRS audit. You should also keep documentation for at least 3 years. If you see yourself among the 1.66 million Americans who are being audited, how can you cope with minimal stress and damage? Take a look at the following tips to keep this IRS issue small:

* There is no cause for panic. You are not being accused of a wrongdoing. It’s a check for accuracy.

* It is important to be aware of the audit process. You can pay in installments, question the audit’s accuracy, and do not have to meet with the IRS and do the audit by mail are a few of your rights.

* Back up your claims with documentation. Show receipts if you deducted for tools and clothes used at work.

* If you feel the issues about your audit are too complex, talk to a professional to help you with your IRS issue.

* Discuss and provide details pertaining to only the IRS problem under scrutiny. Your employees should not discuss other matters if your business is being audited.

* People who knowingly cheat the system are the ones who often get penalties. If you made an honest mistake, chances are the IRS will be forgiving.

Keep your IRS issue from becoming a nightmare. Avoid audits, and if you happen to be selected for one, keep calm. A lawyer can assist you.

Declaring an Amended Tax Return

Whether you discovered that you simply committed a mistake on last year’s tax return or even the one you simply sent off within the mail, it is usually to your advantage to launch an amended tax return. You do not want the government to obtain the discrepancy as this can lead to a considerable IRS problem for you personally later on. You will find occasions when the government simply identifies and corrects math errors and notifies you associated with a changes. This can not compel you to definitely apply for an amended tax return. However, certain errors need you to apply for the amended tax return because the IRS’ discovering about them could complicate matters.

Discrepancies in breaks or credits, total earnings, loved ones and filing status are probably the common errors within the tax return. Remember, however, that delivering a remedied tax return may make you obtain a refund or incur you any penalties.

The shape you need to use to launch a remedied or amended tax return is Income, Amended U.S. Individual Tax Return. This can correct the tax return filed under Forms 1040EZ, 1040A, or 1040. Amended tax statements ought to always be posted with the mail. Electronic 1040X forms are not compatible towards the IRS’ e-file systems. Basically, the 1040X simply requests any data that should be remedied and also the causes of the changes for your original tax return figures.

The most popular good reasons to declaring amended tax statements incorporate a correction in filing status. Citizens usually change status from single to some mind of household filer.  Altering these details inside your tax statements provides you with reimbursement as there’s a considerable difference within the deduction open to individuals who become qualified as mind of household.

For those who have dutifully compensated the required taxes about the tax return under consideration, you might apply for an amendment inside the three year period following a return’s filing date. Otherwise, the sophistication period is cut to simply 2 yrs.

For those who have just filed and you’ve got found a mistake, you might want to hold back until you obtain your refund and every one of the documents for your tax return continues to be processed before filing an amended tax return. This can help you stay from any confusion relating to your tax record or any duplication of documents, therefore getting rid of the potential of an IRS problem.

On the other hand, you will find situations when declaring an amended tax return means having to pay or owing the government more income. Even though it is tempting to not apply for one, doing such is really to your advantage, eventually. In due time, the government will uncover these errors. In cases like this, they may provide you with greater costs and penalties as in comparison to once the mistake was introduced for their attention through your amended tax return.

Information about the Federal Tax Levy

The IRS employs two primary procedures in collecting tax debts from the taxpayers, wage levies and bank account levies.  When any of these is imposed on you, it means that you have a serious problem with the IRS.

The IRS has the authority to levy your wages, including retirement income, social security benefits and other bonuses, if you incur substantial tax debts. In fact, the IRS can directly garnish your paycheck without having to go through a trial. All they have to do is simply send your employer a notification and the latter is then immediately required to transfer a considerable amount of your paycheck to the IRS. Full payment of total taxes due and a levy release are your only options in ending wage garnishment.

The IRS compels the clients of independent contractors and the self-employed to directly pay a certain amount of money to the former. Although some amount will still be given to the contractors, this is significantl less than the normal checks they receive. The IRS Publication 1494 bears all the answers to any questions regarding this matter.

The IRS may also impose a bank account levy and this allows them to take all of the money in any of the bank accounts under your name. Because this is a government mandate, the banks will abide by this notice and it would be pointless to argue with them. However, only funds present in your bank account on the day the levy is received will be wired to the IRS. For example, a levy received on a Tuesday will not affect new funds credited on a Friday. Funds from Wednesday to Friday can only be garnished when another levy is issued.

The law provides you with up to 21 days to convince the IRS to release the bank account levy. However, if a levy release cannot be obtained within the prescribed period, the bank can then send the funds to the IRS.  Ideally, the amount that should be transferred to the IRS should be the same as the amount owed, but if repeated tax levies are issued, then larger sums of money maybe collected.

Besides a wage levy or bank account levy, the government also has a several other methods that are less used but definitely just as efficient at collecting debt. The IRS can also levy personal assets like jewelry, your home, collectables, boat, insurance policies, ATV’s, account receivables and even airplanes should situations call for it. With this, it is important to remember that any tax levy would indicate an IRS problem that simply doesn’t go away unless dealt with squarely.

As clearly pointed out in this write-up, a Federal tax levy is a serious issue in all respects. Thus, it is imperative for people who have tax debts to settle them now and not wait for the government to impose more invasive collection techniques such as tax levies.

Precautions in Avoiding an IRS Audit

Most people are generally rather afraid of a tax audit. Although there are several frightening stories out there from people who have undergone tax audits, a painful fact is that many of them are factual. Both individual tax payers and businesses or companies can be audited at any point by the Internal Revenue Service. Fortunately, only about 1.5% of all of the tax returns in the United States are ever audited on an annual basis, and there are, in fact, steps and precautions you can use to reduce your chances of being among the unfortunate people selected by the IRS.

The first step is ensuring you declare all of your income in detail, regardless of what source you get it from. IRS guidelines clearly state what is required to be reported on a tax return of employees, independent contractors and business entities. Even cash or tips earned also need to be declared and included in your tax return to avoid IRS problems.

Making certain that you have all the proper documentation is another good tip in avoiding an IRS audit. One example is your W-2 or the 1099, which is prepared by your employer and which reports the amount you have earned in the previous year while employed in that particular company. Just make sure that the numbers in the W-2 match the entries on your tax return.

Another simple yet equally important tip is ensuring that there are no mathematical errors in your tax return. The IRS will without a doubt, spot this kind of errors as they are very easy to check. You have to double check that the correct entries are in the correct lines of the tax forms. The IRS often believes that when the math is calculated in a sloppy manner, the same is done to the other areas of the tax return.

Several business owners and independent contractors make the mistake of thinking that their home offices are used strictly for business. Because certain guidelines regarding home offices are outlined, simply claiming your house as a home office causes problems. The guidelines include not keeping personal possessions and not conducting personal activities in the home office. Also, you must not declare more than 20% of your home as home office.

There are many known methods and tips that you can utilize to avoid being audited by the IRS. Although it may seem like the government is against you and you can’t adequately battle an audit, just remain composed and don’t forget that there are certain steps you can take to protect yourself. After all, you do not want to have a major IRS problem with the IRS when the same can be settled early on.

Dealing with IRS Collections Procedures

The IRS collections process begins with your submission of your tax return, excluding the amount of taxes due. It will be the IRS who will determine the taxes owed and they will send this to you through a bill. This first notice will consist of explanations of the amount due as well as a request to receive full payment. If you choose to ignore the IRS mails, others will be sent to you, and this time, there will be applicable penalties and they will be worded in more threatening tones. On the positive light, since notices follow a specific order and format, you can research for these from the IRS to get more information and understand what each implies. In general, receiving several notices means that you have IRS problems that need to be dealt with.

If you believe that the IRS incurred errors in the computation of your taxes, you can send them a letter or even make a phone call and request for a discussion of your bill. They are always open for a discussion that will eventually lead to making the needed adjustments in your taxes should it be found out that there were indeed miscalculations in the computation. If you already settled your bill yet still continue to get IRS notices, you can just send them your proof of payment. Just make sure that only copies of the original documents are forwarded t to the IRS.

If the bill reflects the correct tax due and you are required to pay the full amount, several payment options are available. If the bill is a substantial amount of money and you believe you can’t pay it in full, you may request for an installment payment plan agreement. In this agreement however, you will be paying for the debt over time and still incur the applicable fees for any unpaid balance or be penalized until you finish paying off the whole amount.

If, at the present, you are truly unable to make even a single payment, it may be possible to convince the IRS to defer their collection efforts for a given length of time. You will be considered as currently not collective. On the other hand, such state still entitles you to fees and further interests that will most likely accrue.  This ,in reality, just worsens the problem.

OIC, or Offer in Compromise, is a solution most sought after by tax payers. Although the requisites and qualifications are strict and difficult, an offer in compromise will enable you to pay significantly less than the amount you owe in full, and the remaining portion will be forgiven. Although statistics imply that you are likely to be denied in your application for Offer In Compromise, submitting such request will be worth the risk as this would effectively end your IRS problem, at least until the succeeding year.

There are many cases when all it takes to settle an IRS tax issue is to simply call your local IRS office. Some incidents, however, require that you employ the services of a professional tax attorney for advice on IRS collections methods. Even though you are in debt, you still have the right to be treated fairly and in a just manner. Just remember that it is to your advantage to respond to any IRS notice. Otherwise, they will resort to enforced collections process, which is much more invasive than the usual notices you will get in the mail.

The Effect of Alimony in Your Withholding Tax

Wherever life may take you, the IRS will continuously be at your back.  When you get married, there are tax implications. When you get divorced, still there are tax implications. When you have a baby, get a new job, buy a house, or purchase an energy efficient car – all of these can affect your taxes. In this write-up, we will tackle the effect of alimony in your withholding tax and the forms of IRS assistance on this matter.

Federal taxes can be settled in two different methods. One is through the estimated tax. This is common for the unemployed. As described by the IRS, “estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.” Most employees pay their federal income taxes by withholding. In this case, your employer is authorized to withhold a certain amount from your check as income tax. From whatever form of income your tax is withheld, it is always reflected under your name.

The amount that is withheld from your pay is based on two factors: how much you make and the data provided on your W-4. The latter includes details on whether you are withholding at the single rate or the lesser married rate, how many withholding allowances you can claim, and whether you want any additional income withheld.  For assistance in the computation of your withholdings, you can use the Withholding Calculator.

There are various ways to change the amount of your withholdings and alimony adjustment is among them. To apply for this, you need to accomplish a new W-4 and submit it to your employer. All you need to do to avail of this is forward to your employer a newly-accomplished W-4.

Taxes are not taken out on alimony payments as these are classified as taxable income by the IRS. If are getting these, it is a bright idea to accomplish a new W-4 to reflect an increase in your income. If you do this, you don’t end up owing a bunch of taxes at the end of the year.

On the contrary, being the one to pay for the alimony entitles you for a tax deduction. However, it has to be paid in cash, through a check or through money order.  Agreements like directly paying certain bills for an ex-spouse are not considered alimony. Tax deductions in the form of paying for alimony can be effected in your withholdings only when you have filled out a new W-4.

Change is unavoidable. When they do occur, make sure to update your personal records so your taxes can be adjusted accordingly.

The Basics of Back Taxes Filing

People do not file their taxes for several reasons. But while some reasons are acceptable, the IRS still requires that late and back taxes be filed. Late taxes include those that should have been filed for a particular year and back taxes are those due since the mid 1980’s. Doing so will definitely help you lessen and avoid possible problems with the IRS.

There may be situations when all tax records are unavailable. This is especially true in cases of fire, flood and other natural calamities when all of a person’s belongings are destroyed. The wonderful news is that a tax attorney or an accountant can help in the reconstruction or retracing of a client’s tax records dating as far back as 15 to 20 years ago. This then makes the filing of back taxes very possible.

A number of circumstances, including simply not having enough funds to settle the amount due on their returns, cause many taxpayers to have accumulated back taxes. Filing a missing tax return or back taxes is most probably, one of a client’s best options. Among the major benefits of this move is avoiding a substantial penalty of 25%, which is the charge for late tax returns. Some states, however, penalize you with larger dues if you fail to file your income tax return.

In the case where you have complete tax records of previous years, all you need to do now is prepare your tax returns. Most people see that it is in this stage that professional help is very much needed to avoid IRS issues. It will be heavy for an individual not to know if he/she owes back taxes or to realize that such have not been paid yet. Simply making an appointment with a tax professional significantly eases this inconvenience.

People must, on the other hand, recognize that they can’t file back taxes through e-file or other electronic filing systems. These must be submitted through hand delivery or mail. When they are mailed, they must be sent using certified mail in order to document that the IRS received your tax returns.

For those who are aware that they owe the IRS any amount of money, they will most probably be obliged to pay interest and other penalties. In this case, forms of IRS assistance, like payments plans, are available.

Depending on a person’s specific situation and other aspects of his/her case, filing back taxes may be a relatively quick and easy procedure. Matters only get more complicated when you prolong to deal with the issue and you do not file or pay your back taxes at all. Increase in the amount of money due and worsening of penalties imposed on you are just few of the outcomes of such action.