Today, Optima Tax Relief Lead Tax Attorney, Phil, answers a common question: “How do I get my IRS debt forgiven?”
What is Tax Debt Forgiveness?
If you want to reduce your tax liability with the IRS, you have some options.
Audit Reconsideration
Audit reconsideration is a process offered by the IRS that allows taxpayers to request a review of their tax audit results if they disagree with the findings. You can request an audit reconsideration if you didn’t appear for the initial audit, didn’t receive the audit correspondence due to relocating, have more information you want considered in the audit, or simply do not agree with the audit results.
Offer in Compromise
An Offer in Compromise (OIC) is a program offered by the IRS that allows taxpayers to settle their tax debt for less than the full amount owed. This program is designed for individuals and businesses who are unable to pay their full tax liability or if paying it would create a financial hardship. Be prepared to prove that you are unable to pay the full tax debt, which can be a complex process.
Amended Tax Return
Amending a tax return can potentially lower tax liability if errors or omissions on the original return. For example, maybe you forgot to claim some deductions or credits. Perhaps you selected the incorrect filing status. By carefully reviewing and correcting your tax return, you can potentially secure a refund or reduce your tax obligations.
Join us next Friday as Phil will answer your questions about negotiating with the IRS.
Receiving a notice from the IRS can be an unsettling experience, especially when it involves serious matters like potential tax collection actions. One such notice is the IRS Notice CP90. If you’ve received this notice, it’s crucial to understand what it means and how you should respond. Here’s a comprehensive guide on what to do if you receive IRS Notice CP90.
What is IRS Notice CP90?
IRS Notice CP90, also known as the Final Notice of Intent to Levy and Notice of Your Right to a Hearing, is a notification from the IRS indicating that you have unpaid taxes. The notice serves as a final warning that the IRS intends to levy your assets, such as wages, bank accounts, or other property, to satisfy your tax debt. This notice also informs you of your right to request a Collection Due Process (CDP) hearing within 30 days from the date of the notice.
Why Did You Receive IRS Notice CP90?
You received IRS Notice CP90 because the IRS believes you owe taxes, and previous attempts to collect the debt have been unsuccessful. The notice is issued after the IRS has sent multiple notices demanding payment, and it indicates that more aggressive collection actions, like levies, are imminent unless you take immediate action.
Steps to Take If You Receive IRS Notice CP90
If you receive IRS Notice CP90, don’t panic. You still have options. That said, it’s important to act.
Read the Notice Carefully
The first step is to thoroughly read and understand the notice. It will detail the amount owed, the tax years in question, and the deadline for responding. Pay attention to the deadlines and any instructions provided in the notice.
Verify the Information
Double-check the details in the notice to ensure there are no errors. Verify that the tax amount stated is accurate and that the notice pertains to you. If you believe there’s a mistake, contact the IRS immediately to address the discrepancy.
Consider Your Options
Once you’ve confirmed the notice’s accuracy, consider your options for resolving the debt:
Pay the Amount Owed: If possible, pay the full amount stated in the notice to avoid further penalties and interest. You can pay online via the IRS website, by phone, or by mailing a check or money order.
Set Up a Payment Plan: If you cannot pay the full amount, consider setting up an installment agreement with the IRS. This allows you to make monthly payments to satisfy your tax debt over time.
Offer in Compromise: If you cannot pay the full amount or afford a payment plan, you might qualify for an Offer in Compromise (OIC). This program allows you to settle your tax debt for less than the full amount if you meet specific eligibility requirements.
Request a Collection Due Process (CDP) Hearing: You have the right to request a CDP hearing within 30 days of receiving Notice CP90. This hearing allows you to discuss your case with an IRS officer and explore alternative resolutions to the levy.
Request a CDP Hearing
If you choose to request a CDP hearing, you must do so within 30 days from the date of the notice. Complete Form 12153, Request for a Collection Due Process or Equivalent Hearing, and send it to the address listed on your notice. A timely request for a CDP hearing will temporarily halt the levy process until your hearing is conducted and a decision is made.
Consult a Tax Professional
Receiving IRS Notice CP90 is a serious matter, and navigating the process can be complex. Consider consulting a tax professional, such as a certified public accountant (CPA) or a tax attorney, for guidance. They can help you understand your options, prepare the necessary paperwork, and represent you during negotiations with the IRS.
Respond Promptly
Regardless of your chosen course of action, it’s essential to respond promptly to the notice. Ignoring IRS Notice CP90 can result in severe consequences, including the seizure of your assets and further financial penalties.
Maintain Documentation
Keep copies of all correspondence with the IRS, including the notice itself, any payments made, and any forms submitted. Proper documentation will be crucial if you need to dispute any claims or if issues arise in the future.
What Happens If You Don’t Respond?
Failing to respond to IRS Notice CP90 can lead to severe consequences. The IRS may proceed with levying your assets, including wage garnishment. The IRS can seize a portion of your wages directly from your employer to satisfy your tax debt. They can also freeze and seize funds from your bank accounts to cover the amount owed. In some cases, the IRS can seize physical assets, such as your car or home, to settle your tax debt. Ignoring the notice will not make the debt disappear, and it could worsen your financial situation.
Tax Help for Those Who Received IRS Notice CP90
Receiving IRS Notice CP90 can be extremely intimidating, but it’s crucial to remain calm and take immediate action. By understanding your options, seeking professional assistance, and responding promptly, you can effectively address the notice and work towards resolving your tax debt. Remember, proactive steps can prevent further financial hardship and help you regain control of your financial situation. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
The U.S. tax system is one of the most complex in the world. That said, it can be intimidating for many taxpayers, especially when disagreements arise with the IRS over tax liabilities. In such situations, the United States Tax Court serves as a crucial legal institution that offers taxpayers a platform to contest IRS determinations before paying the disputed amounts. As a specialized federal court, the U.S. Tax Court provides a fair and impartial setting for resolving tax disputes, ensuring that taxpayers have access to justice and due process. Understanding its function, structure, and procedures is essential for anyone involved in tax disputes. Here’s an overview of the U.S. Tax Court, including its background, purpose, and process.
Historical Background
The U.S. Tax Court was initially established as the Board of Tax Appeals in 1924, following the Revenue Act of 1924. It was created to address the increasing number of tax disputes resulting from new federal tax laws. In 1942, it was renamed the Tax Court of the United States and later became the United States Tax Court in 1969 as an independent judicial body under Article I of the Constitution.
Structure and Function
The U.S. Tax Court consists of 19 judges appointed by the President and confirmed by the Senate for 15-year terms. The court’s headquarters are in Washington, D.C., but judges travel across the country to hear cases in various locations, making it more accessible to taxpayers.
Types of Cases
The Tax Court hears a variety of cases, including:
Deficiency Cases: The most common type of case, where a taxpayer disputes an IRS assessment of additional tax owed.
Collection Due Process (CDP) Cases: Involving challenges to IRS collection actions, such as liens or levies.
Innocent Spouse Relief: Addressing requests for relief from joint tax liability for a spouse.
Abatement of Interest and Penalties: Cases where taxpayers seek relief from interest or penalties assessed by the IRS.
Employment Status: Cases involving the classification of workers as employees or independent contractors.
Whistleblower Cases: Involving claims for rewards by individuals providing information leading to the detection of underpayments of tax.
Procedures and Process
Here is the typical process of the U.S. Tax Court.
Filing a Petition: Taxpayers can file a petition with the Tax Court within 90 days after receiving a Notice of Deficiency from the IRS. The petition initiates the legal process and must clearly state the issues and facts in dispute.
Pretrial Procedures: The court encourages settlement discussions between the parties. If a settlement is not reached, the case proceeds to trial.
Trial: Trials are conducted by a single Tax Court judge and are less formal than typical federal court proceedings. Taxpayers may represent themselves or hire an attorney or tax professional.
Decision: After the trial, the judge issues an opinion, which can be a regular or memorandum decision. Regular decisions address new or novel legal issues, while memorandum decisions deal with the application of existing law.
Appeal: Tax Court decisions can be appealed to the U.S. Courts of Appeals, and in rare cases, to the U.S. Supreme Court.
Advantages of the U.S. Tax Court
One of the primary advantages is that taxpayers can dispute a tax deficiency without first paying the disputed amount. This is particularly beneficial for those who cannot afford to pay upfront. In addition, the judges of the Tax Court are specialists in tax law, providing a knowledgeable forum for complex tax issues. Finally, with trials held in various locations across the country, the Tax Court is accessible to taxpayers nationwide.
Tax Help for Those with Tax Disputes
The U.S. Tax Court plays a vital role in the American tax system, providing a specialized and impartial forum for resolving disputes between taxpayers and the IRS. By allowing taxpayers to contest assessments before payment and offering expertise in tax law, the Tax Court ensures fairness and due process in tax administration. If you have a tax issue, it may be best to consult a tax professional. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt.
Selling on eBay can be a profitable venture, whether you’re clearing out unwanted items from your home or running a full-scale business. However, figuring out the tax implications of eBay sales can be confusing, especially for those new to online selling. Here are some tax tips for eBay sellers to help you understand your tax obligations and optimize your tax situation.
Understand When Your Sales Are Taxable
Not all sales on eBay are subject to income tax, but most are. If you’re selling personal items at a loss, like used clothing or old electronics, these sales are generally not taxable. Keep in mind this also means you cannot claim a loss on these items either. However, if you sell them for more than their original cost, you must report the profit. On the other hand, if you regularly sell items to make a profit, the IRS considers you a business. This applies whether you’re selling new or used goods. Business income is taxable, and you may need to pay self-employment tax.
Report Your Income
eBay sales income must be reported on your tax return, and how you report it depends on your seller status. If you’re a casual seller, you should report any profits from casual sales on Form 1040, using Schedule D for capital gains and losses. If you sell on eBay as part of a business or hobby, you should report your income on Schedule C (Form 1040). This is used to report income or loss from a business. You’ll also need to pay self-employment tax, reported on Schedule SE (Form 1040).
Maximize Your Deductions
If you sell on eBay as part of a business, you can deduct various expenses to reduce your taxable income. You can deduct the cost of purchasing items you sell. This includes wholesale purchases or the original cost of personal items. If you use part of your home exclusively for your eBay business, you may qualify for a home office deduction. This can include a portion of your mortgage or rent, utilities, and internet expenses. Alternatively, you can deduct $5 per square foot that is used exclusively for business, up to $1,500. You can deduct costs related to shipping products to customers, including postage and packaging materials. Any fees charged by eBay and third-party payment networks for listing and processing sales are also deductible.
Keep in mind that as of 2018, you may no longer deduct expenses if you sell on eBay as part of a hobby. This also means you may not claim a loss from hobby sales to reduce your taxable income. How do you tell the difference between a hobby and a business? The IRS distinguishes between the two by looking at the frequency of your sales, how much you earn, and how much time you spend working on your hobby or business. Check with a tax professional if you’re unsure which category your activity falls under.
Understand Sales Tax Obligations
Sales tax laws vary by state, and many states require eBay sellers to collect sales tax on sales made to buyers within the same state. To do this, you’ll first need to determine if you have a sales tax nexus in a state. Nexus is a connection between your business and a state, such as having a physical presence or reaching a certain sales threshold. If you have nexus, you need to collect sales tax from buyers in that state. eBay automatically collects sales tax for many states, but you may need to manage it yourself in others. Then, you’ll need to obtain a sales tax permit for any state where you have nexus and are required to collect sales tax.
The frequency with which you must file sales tax returns varies by state. However, it’s often based on your sales volume. Common frequencies include monthly, quarterly, or annually. Don’t worry, states will typically notify you of your filing frequency when you register for a sales tax permit. Most sales tax returns can be filed online. Just be sure to file and pay in full by the due date to avoid penalties and interest.
File Estimated Taxes
If you expect to owe more than $1,000 in taxes at the end of the year, the IRS requires you to make quarterly estimated tax payments. First, you’ll need to calculate your payments. This is done by estimating your expected income, deductions, and credits for the year to calculate your quarterly payments. You can use Form 1040-ES to calculate and pay your estimated taxes. Be sure to mark down the due dates as late payments can result in penalties and interest. Estimated tax payments are due four times a year: April 15, June 15, September 15, and January 15 of the following year. In 2024, the due dates are April 15, June 17, September 16, and January 15, 2025.
Keep Detailed Records
Maintaining accurate records is crucial for all eBay sellers, especially if you’re running a business. You should document every sale, including the item description, sale price, and date of sale. Be sure to keep receipts for any expenses related to your eBay business, such as shipping costs, eBay fees, packaging supplies, and inventory purchases. These expenses can be deducted from your income, reducing your tax liability. If you use your vehicle for business purposes, such as driving to the post office or sourcing inventory, keep a log of your mileage. You can deduct the standard mileage rate or actual vehicle expenses.
Tax Help for eBay Sellers
Taxes for eBay sellers can be complex, especially if you’re running a business. Consider consulting a tax professional to ensure you comply with federal and state tax laws. Tax professionals can also optimize your tax situation by identifying all possible deductions as well as help with record-keeping and filing requirements. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
When it comes to filing your annual tax return with the IRS, Form 1040 is the central document that captures your overall financial picture. If you have realized capital gains or losses from the sale of assets such as stocks, bonds, real estate, or other investments during the year, you’ll need to report these transactions using Schedule D (Form 1040), Capital Gains and Losses. This article will walk you through the essentials of Schedule D, including what it is, who needs to file it, and how to complete it.
What is Schedule D?
Schedule D is a supplementary form attached to Form 1040, used by taxpayers to report capital gains and losses from transactions involving capital assets. These can include a wide range of investments and property types, including stocks, bonds, mutual funds, real estate, and collectibles. The purpose of Schedule D is to determine the net capital gain or loss, which ultimately impacts your taxable income and the amount of tax you owe.
Who Needs to File Schedule D?
You are required to file Schedule D if you have any of the following:
Capital Gains: If you sold any capital assets for a profit, those gains are reported on Schedule D.
Capital Losses: If you sold assets at a loss, these too must be reported. Capital losses can offset capital gains and potentially reduce your taxable income.
Distributions of Capital Gains: If you received capital gain distributions from mutual funds or other investments, they must be included.
Carryover Losses: If you have capital losses from previous years that you are carrying forward, you will need to use Schedule D to apply these losses to your current year’s tax return.
How to Complete Schedule D
Completing Schedule D involves several steps, as you’ll need to gather detailed information about each asset you sold during the year. Here’s a breakdown of the process.
Step 1: Collect Information
Gather all necessary documentation for your capital transactions. This includes:
Form 1099-B: Issued by brokers or financial institutions, this form details sales proceeds and cost basis information for securities transactions.
Form 1099-DIV: Reports dividends and capital gain distributions from investments.
Receipts and records: For any property sales, make sure you have records of the purchase price and any associated costs.
Step 2: Fill Out Part I – Short-Term Capital Gains and Losses
In Part I of Schedule D, report short-term capital gains and losses. Short-term refers to assets held for one year or less. You’ll need to list each transaction separately These can include:
Description of the property: The name or type of asset.
Date acquired and date sold: The purchase and sale dates.
Sales price: The amount you received from the sale.
Cost or other basis: The original cost or adjusted basis of the asset.
After listing all transactions, calculate the total short-term capital gains or losses.
Step 3: Fill Out Part II – Long-Term Capital Gains and Losses
Part II of Schedule D is for long-term capital gains and losses, which apply to assets held for more than one year. Similar to Part I, you’ll need to list each transaction separately and provide the same details. Once you’ve listed all transactions, calculate the total long-term capital gains or losses.
Step 4: Summarize and Calculate Totals
In Part III of Schedule D, summarize the totals from Parts I and II to determine your overall capital gain or loss. This section helps calculate two items:
Net capital gain: If your total gains exceed your losses.
Net capital loss: If your total losses exceed your gains. Note that the IRS allows you to deduct up to $3,000 ($1,500 if married filing separately) of net capital losses against other income.
Step 5: Apply Capital Loss Carryovers
If you have capital losses carried over from previous years, apply them here to reduce any current capital gains or further offset your income. Capital loss carryovers have no time limit. In other words, you can offset capital gains or deduct them against ordinary income in future tax years until they are fully exhausted.
Special Considerations
Note that if you have qualified dividends or a net capital gain, you may need to use the Qualified Dividends and Capital Gain Tax Worksheet to determine your tax liability at the preferential rates. In addition, you may be required to fill out Form 8949. This form provides a detailed listing of individual transactions, which are then summarized on Schedule D.
Tax Help for Those with Capital Gains and Losses
Filing Schedule D is a critical step for taxpayers with capital transactions. Properly reporting your capital gains and losses ensures tax compliance and potentially reduces your tax liability. Always keep thorough records of all transactions and consult a tax professional if you have complex investment activities. Understanding Schedule D is key for maximizing your tax efficiency and making informed financial decisions throughout the year. By carefully completing Schedule D, you’ll have a clear picture of your investment performance and its impact on your overall tax situation. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt.
