Finance Tax Time

Every year in April, American citizens are faced with an imposing deadline - tax day. Throughout the year, income is earned and then taxed. Depending on the way in which dependants are claimed and deductibles used, a person would then be entitled to money back come income tax time or they would have to pay taxes. In either case, dealing with income tax forms and laws can be a disturbing prospect.

Keep in mind that the United States lives on a budget just as regular families do. Their money is what pays for highways, national parks, the military, schools, and other important things associated with this country. However, for the government to have a budget in the first place, they have to collect money from individuals and companies in the form of taxes. For this reason, a certain percentage is deducted from your paycheck, which goes to various entities of the government for their needs.

Understanding the tax laws associated with income tax can be confusing but overall, you could break them down into five groups. First, remember that every person is responsible for paying income tax. The amount paid depends again on a number of factors, as well as income earned. The more salary earned the more taxes are paid by you, because you are placed in a higher-income bracket. The good news is that by using a number of tax benefits, you can pay less.

Income tax laws require that you pay money out throughout the year, which is known as a “pay as you go” rule. Typically, income taxes would be taken out of your paycheck and then sent on to the government. Then, at income tax time, the amount paid versus what was owed is balanced, which is when you pay to or receive money from the government. In other words, if more taxes were taken out of your paycheck than what you owed, you would receive a refund at tax time whereas if you did not pay enough, you would owe the government money.

You also need to remember that the tax system and tax laws are considered progressive, which means the more you make the more you pay while the less you earn the less you pay. Therefore, your income tax is going to fluctuate any time your income changes. Interesting, many people on Capital Hill argue about this progressive system, feeling that it is unfair. However, for the time being, the tax laws stand although we can be sure there will be changes in the future.

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Problem? Yes and No. No because you can file ASAP. Yes, because penalties and interest can be fairly steep. (Generally, interest is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is determined every three months and is the federal short-term rate plus 3 percent. Interest is compounded daily)

(If you owe tax and don’t file on time, the total late-filing penalty is usually four and one-half percent of the tax owed for each month, or part of a month, that your return is late up to five months. If your return is over 60 days late, the minimum penalty for late filing is the smaller of $100 or 100 percent of the tax owed)

If IRS has sent you communications that you had to sign for - then your time may be short before they start the process to levy your wages or your bank account. Once this happens you will need to talk to them one way or another, either by calling them or by contacting a tax professional who will call them for you. (I recommend the second option)

If IRS levies your bank account, your bank must hold funds you have on deposit - up to the amount you owe, for 21 days. This period allows you time to solve any problems from the levy or to make other arrangements to pay. After 21 days, the bank must send the money, plus interest if it applies to the IRS. Contact Us (Note: If you own Real Estate or have a Small Business and IRS has sent an intent to Levy, it is best to contact an Enrolled Agent or a Tax Professional as soon as possible).

Your question might be, at this point, “If I did NOT file my taxes, how do they know how much I owe”?
Answer: IRS completes your tax return for you; based upon 1099s and W-2 information from your employer. The tax liability that IRS computes stands as the collection amount UNTIL you file your tax return for that year. And of course their tax return almost always generates a higher tax liability then if you had filed your own taxes!

Taxes Will Travel specializes in filing Back Taxes for Individuals. A consent form from the client is necessary in order to obtain income information from IRS for the year(s) in question. Once this task is completed and SS numbers, dependents, deductions, etc information is received the tax return(s) can be completed immediately.

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The terror of most Americans is to be hunted by the IRS for overdue taxes. Well, the terror has evolved a bit as the IRS is now using private debt collectors to do much of the work.

IRS and Private Debt Collectors

If you get behind on your taxes, you undoubtedly worry about the IRS hunting you down. Many people develop a false sense of security because nothing much seems to happen at first. There is no denying the IRS is a huge bureaucratic institution. It takes the agency a while to figure out you haven’t paid and get the collection ball rolling. At least, this used to be the case.

Regardless of your political affiliation, there is no denying that all politicians like to spend money. Of course, this means they need money. In 2004, our beloved leaders decided to speed up the collection process on delinquent taxpayers. In passing the American Jobs Act of 2004, the politicians gave the IRS the ability to hire third parties to collect the back taxes. Apparently, “American Jobs Act” referred to keeping debt collectors employed!

As you might imagine, debt collectors used by the IRS failed to follow most of the rules when attempting to collect back taxes from delinquent payers. To be honest, they ran roughshod over nearly every right guaranteed to taxpayers often threatening liens, judgments and even jail terms. Objections started being raised and politicians started getting an earful. Despite passing the law, the politicians immediately blamed the IRS and instructed the agency to take corrective measures.

The IRS has now taken steps too real in the bounty hunting debt collectors. The IRS will still be using the agencies, but will monitor their activity closely. The IRS will also be sending out a detailed notice to delinquent taxpayers on how the process works and what the debt collectors can and cannot do to collect back taxes. Specifically, the notice will let you know that debt collectors cannot take any action against you in regard to issuing tax liens, judgments and so on. All they can really do is keep calling and annoy you till you finally pay.

If debt collectors start calling you about back taxes, do not be intimidated. Wait for the notice from the IRS and then address your problems. If the debt collectors start threatening or intimidating you, contact the taxpayer advocate office immediately. You can find their contact information on the site of the IRS.

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