Did you make a mistake on your tax return? Whether it’s to correct errors, claim overlooked deductions, or address changes in filing status, it may be best to amend your tax return. CEO David King and Lead Tax Attorney Philip Hwang provide helpful tips on what important facts you need to know before amending your tax return, including how to avoid owing a tax burden.
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When you marry, you often share many aspects of your life with your spouse: your home, your finances, and perhaps even your dreams. However, what happens when it comes to tax liabilities? Specifically, are you responsible for your spouse’s back taxes? This question can cause significant stress and confusion. To navigate this issue, it is essential to understand the various scenarios and laws that come into play. Here, we’ll explore the factors that determine liability and the potential consequences for both parties involved.
Back taxes are taxes that have been partially or completely unpaid in the year they were due. They can accrue interest and penalties over time, leading to a larger debt. The IRS and state tax authorities are vigilant about collecting these taxes, and failure to pay can result in serious consequences such as liens, levies, and wage garnishments.
The short answer to this question is yes. However, there are certain factors that may come into play to decide for sure, including when you filed and under which filing status. When you get married, you suddenly have two new filing status options to choose from. You can go with married filing jointly or married filing separately. In the married filing jointly scenario, both spouses report their combined income, deductions, and credits on a single tax return. When filing separately, each spouse files their tax return separately, reporting only their income, deductions, and credits. Which of these options you choose will greatly determine whether the IRS can hold you accountable for tax debt.
If you file jointly, both spouses are generally jointly and severally liable for the tax debt. In this case, the IRS can pursue either spouse for the entire amount owed. This means that both spouses are individually and collectively responsible for any taxes, interest, and penalties owed on a joint tax return. Even if you yourself did not do anything wrong, or you were unaware of any wrongdoing by your spouse, you are still 100 percent legally responsible for your shared tax debt.
If you choose to file separately, you are only responsible for your own tax liabilities. This can protect you from being liable for your spouse’s back taxes. However, this filing status often results in higher tax rates and reduced eligibility for certain credits and deductions.
In community property states, spouses equally own all income and assets acquired during the marriage. This means if you live in a community property state, you might be responsible for your spouse’s tax debt, even if you file separately, because half of your community income is considered yours. However, income from property owned by one spouse before marriage, or acquired by gift or inheritance during the marriage, is typically considered separate property and not subject to community property rules.
Timing is the second factor that can determine your liability for your spouse’s tax debt. If your spouse had tax debt before you were married, only they are responsible for that debt. You can apply for Injured or Innocent Spouse Relief if the IRS attempts to collect from you. If your spouse incurs tax debt during your marriage, you will use the guidelines outlined above to determine your liability.
Remember, it all depends on which filing status you used during the year the tax debt appeared. If your spouse incurs tax debt after your marriage, you may be responsible for it if you filed jointly, even if you were legally separated. However, in this case, you might be able to apply for Separation of Liability relief. This will limit your liability if you and your spouse were no longer married or living together when they incurred their tax debt.
If your spouse incurs tax debt, you may qualify for some type of relief. Here are the most common options.
If your spouse did not report all income, claimed credits they weren’t eligible for, or took improper deductions on a joint return without your knowledge, you may qualify for Innocent Spouse Relief. This option is more common for taxpayers who are no longer married. To request relief, taxpayers should file Form 8857, Request for Innocent Spouse Relief. Innocent spouses must file within two years of receiving an IRS notice informing you of the tax debt.
Injured spouse relief, on the other hand, is typically for individuals who are currently married, and your portion of your joint tax refund was used to pay pre-existing debt that belongs to your spouse. This can include overdue child support, other taxes due, etc. To request this relief option, taxpayers should file Form 8279, Injured Spouse Allocation. They should file within three years of the return being filed or two years from the date the tax was paid, whichever event happened later.
Separation of Liability Relief applies in situations where a joint return was filed, and the innocent spouse can demonstrate that they are divorced or legally separated from the other spouse. Under this relief, the IRS divides tax liabilities between the spouses based on their respective shares of income, deductions, and credits. To request relief, taxpayers should file Form 8857, Request for Innocent Spouse Relief within two years of receiving an IRS notice informing you of the tax debt.
If you’re not eligible for innocent spouse relief or separation of liability relief, you might qualify for equitable relief. Equitable relief can save you from paying your spouse’s understated or underpaid taxes on your joint return. This relief option is typically only granted for taxes due on your spouse’s income and assets and not your own. To request relief, taxpayers should file Form 8857, Request for Innocent Spouse Relief within two years of receiving an IRS notice informing you of the tax debt.
There are scenarios that would disqualify you from relief. These include knowledge of the errors your spouse made or signing an offer in compromise with the IRS. It’s also important to note that these relief options can take months for the IRS to review and process. Be sure to consult with a qualified tax professional to make sure you know your options. Luckily, the IRS recognizes the need to protect innocent parties and provides relief options for them. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
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The Work Opportunity Tax Credit (WOTC) is a valuable federal tax credit available to employers who hire individuals from certain targeted groups that have consistently faced significant barriers to employment. Established as part of the Small Business Job Protection Act of 1996, the WOTC aims to incentivize businesses to diversify their workforce and provide job opportunities to individuals who might otherwise struggle to gain employment. Here’s a breakdown of the Work Opportunity Tax Credit, including who qualifies for it, the benefits of it, how to apply, and the importance of it in workforce diversity.
The WOTC is designed to encourage the employment of individuals from specific groups. These targeted groups include the following.
Employers can receive a tax credit that ranges from $1,200 to $9,600 for each eligible new hire. However, the actual credit depends on the target group and the individual’s employment period and hours worked. The credit is calculated as a percentage of the employee’s first-year wages:
The maximum tax credit varies by target group. For example:
To claim the WOTC, employers must follow these steps.
The WOTC serves as a crucial tool in promoting workforce diversity and inclusion. By encouraging employers to hire individuals from disadvantaged backgrounds, it helps reduce unemployment and underemployment among target groups, fostering economic growth and community development.
Moreover, businesses benefit by reducing their tax liability while gaining access to a broader pool of potential employees. The program also helps employers fulfill their social responsibility by contributing to the improvement of their communities and the lives of their employees.
The Work Opportunity Tax Credit is a win-win for both employers and employees. By providing tax incentives to businesses, it encourages the hiring of individuals who face significant barriers to employment. Employers not only gain financial benefits but also contribute to a more inclusive and diverse workforce. Understanding and leveraging the WOTC can be a strategic advantage for businesses looking to make a positive impact while enhancing their bottom line. Optima Tax Relief has over a decade of experience helping taxpayers with tough tax situations.
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Today, Optima Tax Relief Lead Tax Attorney, Phil, talks about tax identity theft, breaking down his top tips on how to avoid being a scam victim.
An Identity Protection PIN (IP PIN) from the IRS is a six-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. This PIN provides an additional layer of security for individuals who have experienced tax identity theft or are at higher risk of tax-related identity theft. You can request an IP PIN through your IRS online account.
Your IRS online account houses several types of tax transcripts. One of them is the wage and income transcript. Look for unauthorized or unfamiliar entries, such as: inaccurate income reported as earned under your SSN; employers you never worked for; and any other similar discrepancies. If you find any discrepancies, it could mean your Social Security Number has been compromised. You can also check your account transcript to see if someone filed a tax return under your name and social.
If you feel your identity has been stolen or compromised, contact the IRS immediately. You can call them at 800-908-4490. Be prepared to attach IRS Form 14039, the ID theft affidavit, to your tax return if you have not already filed. The IRS will review your affidavit and investigate the identity theft claim. They may contact you for further information if needed.
If you think your identity has been compromised, consider asking for help from a tax professional.
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When managing personal finances, understanding the impact of back taxes on your credit score is crucial. Many people may wonder if unpaid taxes can affect their creditworthiness, especially given how credit scores play a significant role in various financial decisions, from obtaining loans to securing housing. Here’s a comprehensive look at how back taxes interact with credit scores and what you need to know to manage your finances effectively.
Back taxes are taxes that haven’t been paid in full by their due date. They can include unpaid taxes owed to federal, state, or local governments. If left unpaid, these taxes can accrue penalties and interest, increasing the amount owed over time. Back taxes can result from a taxpayer failing to pay their tax bill, not reporting all their income, or not filing a tax return at all. When you owe the IRS, they may use one of several means of collecting from you.
So, do back taxes directly affect your credit score? The short answer is no. While back taxes themselves do not directly impact your credit score, they can have an indirect effect in several ways.
Historically, if you owed back taxes, the IRS or state tax authority could place a tax lien on your property. A tax lien is a legal claim against your assets to secure the payment of your tax debt. Before 2018, tax liens appeared on credit reports and could significantly damage your credit score. However, as of April 2018, the three major credit bureaus (Equifax, Experian, and TransUnion) no longer include tax liens in credit reports. This change means that new tax liens won’t directly lower your credit score.
Having back taxes can increase your overall debt load. While the debt-to-income ratio is not a direct factor in credit scoring models, a high debt load can affect your ability to obtain new credit and might indirectly influence your financial stability, which can reflect on your credit behavior.
Owing back taxes can cause financial stress, which might lead to late or missed payments on other financial obligations, such as credit cards, loans, or mortgages. Payment history is the most significant factor in credit scoring models, and missed or late payments can severely harm your credit score.
If you find yourself owing back taxes, there are steps you can take to mitigate the potential impact on your financial health and credit score.
While back taxes do not directly affect your credit score, they can have indirect effects that might harm your financial health. By understanding the relationship between taxes and credit scores, and by taking proactive steps to manage your tax obligations, you can maintain better control over your financial situation and protect your credit score. Remember, staying informed and seeking professional assistance when needed can make a significant difference in your financial well-being. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
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