Finance Tax Time

There was once a song about battling the law and losing. Fortunately, battling the IRS is possible and sometimes inevitable.

Battling the IRS

There comes a time when many Americans must take action against the IRS. The IRS can come down swiftly and without mercy against taxpayers for issues ranging from simple mistakes to genuine tax evasion. When such a situation occurs, usually in the form of an audit and followed by possible federal prosecution, it becomes necessary to stand up to the IRS. As many experts will tell you, knowing the right steps to take and doing things the right way can actually make battling the IRS prove to be a very valuable thing.

Every year, honest, tax-paying Americans worry that their income tax return will end up being audited by the IRS. In fact, the number of audits has increased quite significantly in recent years, lending its hand even further to the worry and stress. Audits can lead to major fees and even criminal prosecution. Needless to say, such a situation can become ugly very quickly.

However, many Americans don’t realize that they can fight the IRS. And, not only can they fight, but often times they can emerge with some sort of victory. In fact, recent studies have shown that over 41% of Americans who took their cases to the IRS’s appeals division won at least some degree of relief, while others had their penalties wiped out completely. Not only this, but countless numbers of other Americans have fought cases against the IRS in district courts and also emerged victorious.

What this means for the average American is that the IRS shouldn’t worry you too much. Obviously, an audit can be very scary and can occur at any time. However, as long as you did file your taxes in honesty, they are many venues you can look to for help. Just do some research, online or offline, and find a good tax lawyer to represent you. Whatever steps you take, do NOT talk to the IRS yourself. Your statements are evidence against you and you may inadvertently provide evidence the IRS has no right to obtain.

You will be surprised at your own chances of defeating the IRS and having your penalties reduced or even eliminated. Battling the IRS is something that can prove to be a very valuable tool for many Americans looking for tax relief.

Richard A. Chapo is with BusinessTaxRecovery.com - providing information on taxes.

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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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You have to love car dealers. With the passage of the Energy Policy Act of 2005, car dealers are screaming about the tax benefits of buying these vehicles. Here’s the scoop.

Deductions and Credits

The Energy Policy Act of 2005 made a major modification to the tax benefits of owning a hybrid vehicle in an effort to entice businesses and individuals to pursue cleaner fuel uses. The primary switch was to move the tax benefits from deductions to credits. Specifically, the Act creates a credit that can be claimed by taxpayers who purchase one of these super fuel efficient vehicles.

Taxpayers can now claim a credit of as much as $3,400 per vehicle. This is a HUGE tax break because credits are subtracted from the amount of tax you owe, not your gross income. If you can claim a credit of $3,400 and owe $5,000 after figuring your tax, you end up paying $1,600. Anyway you look at it, this is a very powerful tax savings benefit.

There are a few problems with the new credit for hybrid vehicles. First, the credits only apply to vehicle purchases beginning January 1, 2006. If you purchased in 2005, you get to claim a pitiful little deduction covered later on this page. Deductions have much less impact on your taxes since they are applied to gross earnings.

Second, the credit amount is not set regardless of what dealers or the media is saying. As of February 10, 2006, the IRS hasn’t issued any guidance on the credit amount. When it does, the IRS will set a particular credit amount for each vehicle and model. In coming up with a figure, the IRS analyze how clean the vehicle is from an emissions point of view, the size and other things that a mechanic would understand. How an IRS agent understands these issues is beyond me, but such is life. Regardless, the IRS will be issuing the credit amounts for particular vehicles as we move through 2006.

If you purchased your hybrid in 2005, you do not get to claim a credit against the amount you owe Uncle Sam. Instead, you claim a deduction in the amount of $2,000 from your adjusted gross earnings. While this doesn’t have nearly the impact of a credit, at least you get something.

Richard A. Chapo is with BusinessTaxRecovery.com - obtaining tax refund recovery for overpaid small business taxes. Visit BusinessTaxRecovery.com to read more business tax articles.

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