Tax Relief Solutions

What is Currently Not Collectible Status?

what is currently not collectible status

When taxpayers find themselves unable to pay their tax liabilities due to dire financial circumstances, the IRS offers a lifeline known as Currently Not Collectible (CNC) status. This status temporarily suspends debt collection efforts by the IRS, providing individuals with breathing room to get their finances under control. In this article, we will explore what CNC status entails, who may qualify for it, and how it can provide much-needed financial relief. 

What is Currently Not Collectible (CNC) status? 

Currently Not Collectible (CNC) status is a designation provided by the IRS to taxpayers who demonstrate that they are unable to pay their tax debt due to severe financial hardship. When a taxpayer’s account is classified as CNC, the IRS temporarily halts its collection activities, including liens, levies, and wage garnishments. However, the IRS will continue to assess interest and penalties during this time. They will also seize any tax refunds you receive and apply them to your tax balance. While collections typically stop, the IRS will still continue to send you tax bills as they are legally required to. 

Who qualifies for CNC status? 

As mentioned, CNC status is for taxpayers who cannot afford to pay their taxes. In general, taxpayers will need to meet general qualifications to be considered for CNC status. These include: 

  • Income under certain threshold 
  • Unemployed with no other income 
  • Little or no disposable income after basic expenses 
  • Living expenses meet IRS guidelines 
  • All income comes from Social Security, government welfare, or unemployment 

How do I apply for CNC status with the IRS? 

Taxpayers who can show proof of financial hardship may qualify for CNC status. To be considered, the IRS may require you to be current on any tax returns. You will need to submit IRS Form 433-F, Collection Information Statement, IRS Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or IRS Form 433-B, Collection Information Statement for Businesses. These forms collect information about your current financial situation, including your account balances, real estate values, credit card debt, employment information, living expenses, and more.  

The IRS will use the information provided to confirm your inability to fulfill your tax obligations. They may request additional information and documentation to support your claims. You should keep in mind that you need to continue to file your taxes each year that you are under CNC status, even if you cannot afford to pay your taxes. You should also continue to make estimated tax payments and federal tax deposits if you are required to.  

What happens after the IRS reviews my case? 

If the IRS determines that you are unable to pay your taxes, you will be granted CNC status. This means that the IRS will temporarily pause all collections. It’s important to understand that CNC status is not a permanent get out jail free card, nor will it stop penalties and interest or federal tax liens. It is meant to relieve financial pressure until your financial situation improves. That said, the IRS will review your financials every year to see if you can afford to pay your tax bill. If your financial situation improves, they will likely remove your account from CNC status and begin to collect again.  

Should I apply for CNC status? 

CNC status allows individuals to stabilize their finances, meet essential living expenses, and work towards resolving their tax debt. It is important to consult with a tax professional or seek guidance from the IRS to understand the eligibility criteria and application process for CNC status. Remember, while CNC status offers temporary relief, it does not eliminate your tax debt entirely, and individuals should actively seek long-term solutions to their financial challenges. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

Contact Us Today for a Free Consultation 

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Am I Responsible for My Spouse’s Back Taxes?

am i responsible for my spouse's back taxes

Marriage is viewed as a union of two individuals, joining both their lives and responsibilities. As financial obligations and responsibilities intertwine, questions arise about whether one spouse is accountable for the other’s past tax liabilities. In this article, we will delve into the concept of spousal responsibility for back taxes, exploring the factors that determine liability and the potential consequences for both parties involved. 

Can the IRS Hold Me Liable for My Spouse’s Tax Debt? 

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 – married filing jointly and married filing separately. Which of these options you choose will greatly determine whether the IRS can hold you accountable for tax debt.  

When you file jointly, you assume joint and several liability. The IRS employs this legal principle, which essentially means that both spouses are individually and collectively responsible for any taxes, interest, and penalties owed on a joint tax return. This means that 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.  

On the other hand, if you file separately in a year when your spouse incurred tax debt, you are not responsible for paying it. Filing separately means you will only be held accountable for your own tax debt.  

How Does Timing Affect Whether I’m Liable for My Spouse’s Back Taxes? 

Timing is the second factor that can determine your liability for your spouse’s tax debt. If your spouse had tax debt before you got married, only they are responsible for that debt. If the IRS attempts to collect from you still, you can apply for Injured Spouse Relief or Innocent Spouse Relief (more on these later). 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, which will limit your liability if you and your spouse were no longer married or living together when they incurred their tax debt.  

Tax Relief Options for Spouses 

If your spouse incurs tax debt, you may qualify for some type of relief. Here are the most common options. 

Innocent Spouse Relief  

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 within two years of receiving an IRS notice informing you of the tax debt. 

Injured Spouse Relief 

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 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 

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 tax liabilities are divided 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. 

Equitable Relief 

If you find 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. 

Tax Help for Innocent Spouses 

There are scenarios that would disqualify you from relief, such as 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.  

Contact Us Today for a Free Consultation 

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Chapter 13 Bankruptcy and Taxes

chapter 13 bankruptcy and taxes

We are told that filing for bankruptcy should be the very last resort when dealing with extreme financial hardship. This is because it has long-term effects, like a negative impact on your credit score for up to 10 years, decreased access to credit, loss of assets, and sometimes forfeiture of tax refunds. In addition, bankruptcies are public information, so employers, customers, family, and just about anyone can access this information. Filing for bankruptcy must be a calculated decision and one that takes all factors into consideration, including the tax implications. In this blog article, we’ll look at the tax consequences of Chapter 13 bankruptcy and provide useful information to help individuals and companies make informed decisions. 

What is Chapter 13 bankruptcy? 

Chapter 13 bankruptcy is often known as the wage earner’s bankruptcy, including self-employed individuals and sole proprietors, because it is for those who have income but have fallen behind on payments for items purchased on credit. In Chapter 13 bankruptcy, your debts are reorganized, and a payment plan is established. A court-appointed trustee will supervise you and collect and distribute your payments. As long as you satisfy the terms of the repayment plan issued by the bankruptcy court, you should be allowed to keep your house after Chapter 13 bankruptcy. Under Chapter 13, you have 3-5 years to pay off your obligations while devoting all of your disposable income to debt repayment. That implies simple living, but the Chapter 13 option allows you to erase unsecured debt, such as credit card bills, while catching up on home payments. 

What happens to tax debt after filing for Chapter 11 bankruptcy? 

Tax debts cannot usually be discharged (wiped away) in Chapter 13 bankruptcy. You instead repay your tax debts over the course of your Chapter 13 repayment plan, which could take three or five years. Typically, during bankruptcy, debts will be classified as priority or nonpriority. These tax debts need to be paid in full during the repayment period. This can include income taxes, FICA, some employment taxes, penalties, and others. On the other hand, nonpriority debts are usually combined with unsecured debts you have, such as credit card debt. These are the debts that are likely to be settled with creditors for less than what you owe. However, you should keep in mind that if you still have remaining taxes due when your repayment period ends, you must pay them in full. Any outstanding tax debts will not be discharged, and you will be obligated to pay them. 

Filing Tax Returns After Bankruptcy 

Like the other two chapters, it is imperative that you still pay your taxes while in Chapter 13. It is critical to keep up with your tax duties during your bankruptcy process, including timely filing of tax returns and payment of any taxes owed by the due date. While in bankruptcy, you can technically still receive tax refunds. However, they might be delayed or utilized to pay off tax debts. 

Tax Help for Bankruptcy Filers 

It can be difficult to pay taxes while in Chapter 13 bankruptcy. You may confront a variety of difficulties. Some examples are managing all payments, paying down interest and penalties on your tax debt, changing your repayment plan to incorporate tax liabilities if it hasn’t been done already. Taking care of both tax payments and overdue tax bills during Chapter 13 can be overwhelming, but it really is crucial to not only understand your tax obligations but also figure out how to manage your debt during your repayment plan. Rest assured, working with experienced bankruptcy lawyers and tax professionals can help mitigate the situation and help you successfully navigate the bankruptcy process. If you need tax help, Optima Tax Relief is here.  

Contact Us Today for a Free Consultation 

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Chapter 11 Bankruptcy and Taxes

chapter 11 bankruptcy and taxes

Navigating the intricate world of bankruptcy can be difficult, particularly when it comes to comprehending the tax implications. Chapter 11 bankruptcy is a powerful instrument for reorganizing individuals and enterprises and regaining financial stability. However, it is critical to understand how this process impacts taxes and plan properly. In this blog article, we’ll look at the tax consequences of Chapter 11 bankruptcy and provide useful information to help individuals and companies make informed decisions. 

What is Chapter 11 bankruptcy? 

Also known as a “reorganization” bankruptcy, Chapter 11 bankruptcy is much more complicated than its counterparts. Chapter 11 bankruptcy is a type of bankruptcy in which you keep your financial assets and exempt property. Unlike Chapter 7 bankruptcy, you are the appointed trustee in this sort of bankruptcy case, and you can borrow new money. With Chapter 11 bankruptcy, some taxes can be discharged, but it varies per situation. It’s important to note that failure to properly reorganize and obtain approval for a debt repayment plan may result in the conversion of a Chapter 11 case to a Chapter 7, in which assets are liquidated to pay off debt. 

What happens to tax debt after filing for Chapter 11 bankruptcy? 

Chapter 11 bankruptcies typically do not discharge tax debt. In Chapter 11, pre-petition tax liabilities are categorized as “priority claims.” These claims must be paid in full, and tax officials are usually given priority over other creditors. However, there are circumstances where taxes can be considered a “dischargeable debt” that may be forgiven through bankruptcy. The amount of tax debt that can be erased is determined by a variety of factors, including the type of tax owed, the length of time the tax obligation has been outstanding, and the corporation’s or individual’s financial means.  

Filing Tax Returns After Bankruptcy 

Businesses must continue to file their tax returns as required by the IRS under Chapter 11 bankruptcy. Failure to meet these duties may result in penalties and audit risks. It’s critical to work with a skilled tax professional to ensure timely and accurate filing of tax returns, as noncompliance may stall the bankruptcy process and cause further legal issues. While in bankruptcy, you can still obtain tax refunds. However, refunds may be delayed or used to pay off tax debts. 

Tax Help for Bankruptcy Filers 

Throughout the bankruptcy process, it’s crucial that you remain compliant with the IRS, specifically with tax filing and reporting. Failure to file tax returns on time and correctly may result in penalties and other problems. Also keep in mind that if you do declare bankruptcy, you may have additional reporting requirements, such as alerting the IRS of your bankruptcy filing. Given the complexities and potential tax ramifications of bankruptcy, it is strongly advised to seek professional advice. Consulting with tax professionals as well as bankruptcy attorneys will provide you with the information you need to successfully navigate the process. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

If You Need Tax Help, Contact Us Today for a Free Consultation

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Chapter 7 Bankruptcy and Taxes

chapter 7 bankruptcy and taxes

Bankruptcy is an exhausting process that individuals and corporations may have to go through when they are overburdened by financial obligations. While it provides the opportunity for a fresh start, it is critical to be mindful of the tax implications. In this blog article, we will discuss the tax implications of bankruptcy, assisting you in understanding the potential penalties and providing guidance to help you navigate this complex scenario. 

Taxes After Bankruptcy 

The discharge of debts is one of the key benefits of bankruptcy, allowing people or organizations to erase or restructure their financial commitments. It is important to note, however, that not all obligations, including certain tax debts, are immediately forgiven. Much of it will depend on which type of bankruptcy you file for. 

What is Chapter 7 bankruptcy? 

Chapter 7 bankruptcy, commonly known as “liquidation bankruptcy” or “straight bankruptcy,” is a legal procedure that allows individuals or corporations to start over financially by erasing the majority of their debts. It is the most common type of personal bankruptcy in the United States. A trustee is appointed in Chapter 7 bankruptcy to oversee the proceedings and manage the debtor’s assets. The primary function of the trustee is to identify any non-exempt assets that can be sold or liquidated to repay creditors. 

What happens to tax debt after filing for Chapter 7 bankruptcy? 

Income taxes can be discharged by filing Chapter 7 bankruptcy if you meet certain requirements including: 

  • Your tax debt is income based (either federal or state) 
  • You did not intentionally evade making tax payments and all actions were lawful 
  • Your tax debt is at least 3 years old 
  • You filed a tax return at least 2 years before filing for bankruptcy (late returns and substitute returns filed by the IRS generally do not count) 
  • The taxes in question were assessed at least 240 days before filing for bankruptcy 

You must note that any tax liens recorded before the bankruptcy will remain in effect. This means that you will still need to pay off the tax lien when you sell the property with the lien attached to it. 

In addition, property taxes owed before the bankruptcy is filed will still be owed. Taxes other than federal and state will also still be due, including FICA, Medicare, sales tax, etc. You should also expect to continue paying certain employment taxes and penalties.  

Filing Tax Returns After Bankruptcy 

When filing, you will use Form 1040 for your individual return and your appointed trustee will file Form 1041 on your behalf, which is the U.S. Income Tax Return for Estates and Trusts. You may receive Form 1099-C, Cancellation of Debt from creditors that canceled $600 or more in debt on your behalf. Typically, any canceled debt should be reported on your tax return as taxable income. However, having debt forgiven through bankruptcy typically exempts an individual from paying taxes on the canceled debt. When your debt is discharged through bankruptcy, you’ll need to file IRS Form 982, About Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness to inform the IRS of your discharged debt that should be excluded from your taxable income. 

Tax Help for Bankruptcy Filers 

Compliance with tax return filing and reporting duties is critical throughout bankruptcy. Failure to file tax returns on time and appropriately might result in penalties and further issues. Furthermore, if you file for bankruptcy, you may have extra reporting duties, such as notifying the IRS of your bankruptcy filing. Given the intricacy and potential tax implications of bankruptcy, it is strongly advised to obtain expert guidance. Consulting with both tax professionals and bankruptcy attorneys will give you the knowledge you need to successfully navigate the process. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

Contact Us Today for a Free Consultation 

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How IRS Installment Agreements Work

how irs installment agreements work

When most people first examine tax relief options, they might have their hopes set on an offer in compromise – or their tax debt settled for less than what they owe. Unfortunately, OICs are more often denied by the IRS than they are accepted. When tax debt becomes too much to manage, an IRS installment agreement might be your best option. Here’s an overview of how IRS installment agreements work. 

What Is an IRS Installment Agreement? 

An installment agreement is a payment plan set up with the IRS to pay your tax bill over a set period of time. The installment agreement will bundle all taxes owed if you owe tax for more than a year. That said, you cannot have two installment agreements with the IRS. During this time, the IRS will generally stop levying. Collections are typically ceased or prolonged while the installment agreement is pending until it can be approved or rejected. However, the IRS will typically keep any tax refunds you receive and apply them to your tax bill. If the installment agreement request is rejected, collections will be suspended for 30 days. Every taxpayer has the right to appeal a rejection, in which case collections will be suspended until a decision is made on the appeal.  

What IRS Installment Agreements Are Available? 

The IRS offers both short-term and long-term installment agreements. Let’s review the eligibility criteria, terms, and costs for both. 

Short-Term Installment Agreement 

With a short-term installment agreement, you will need to pay your full tax bill within 180 days or less. This option is available to taxpayers who owe less than $100,000 in combined tax, penalties and interest. To qualify, you must be current on all tax returns. Individual taxpayers, including sole proprietors and independent contractors, can apply online, over the phone, via mail or in person for free. It’s important to note that interest will continue to accrue while you’re making payments. The current interest rate is 7% per year, compounded daily. Some penalties will also still apply. 

In general, the IRS will ask how much you can afford to pay each month. Once a monthly payment is finalized, payments can be made through automatic bank account withdrawals, also known as a Direct Debit installment agreement. You can also make non-automated payments online or by phone, or via check, money order, or a debit or credit card. Payments made with debit or credit cards will also be charged with a processing fee. Debit card processing fees are about $2-4 per payment while credit card processing fees can be up to 2% of the payment. You can review your installment agreement details through your online IRS account. You can also make some changes to your agreement online including your monthly payment, monthly due date, bank information, and more.  

Long-Term Installment Agreement 

With a long-term installment agreement, you can pay your full tax bill in over 180 days. This option is available to taxpayers who owe less than $50,000 in combined tax, penalties and interest. To qualify, you must be current on all tax returns. Individual taxpayers, including sole proprietors and independent contractors, can apply online, over the phone, via mail or in person for free. It’s important to note that interest will continue to accrue while you’re making payments. The current interest rate is 7% per year, compounded daily. Some penalties will also still apply. 

The fees for a long-term installment agreement are more substantial. If you want to pay monthly through automatic withdrawals, there is a $31 online setup fee, or a $107 setup fee to apply by phone, mail or in person. If you are considered low-income, you might be able to get this fee waived. If you want to make monthly non-automated payments, you will need to pay a $130 online set up ($43 for low-income taxpayers), or $225 to apply by phone, mail or in person. There is also a $10 fee to revise an existing installment plan or to reinstate after defaulting. This fee may be reimbursed for low-income taxpayers.  

Businesses are also eligible for long-term installment agreements if they are current on all tax returns and owe $25,000 or less in combined tax, interest and penalties. The same setup fees apply to businesses. 

For debt less than $50,000, you will typically have a maximum of 72 months to pay off your tax bill. Your minimum payment can be found by taking your tax balance and dividing it by 72 months. If you find that you won’t be able to pay this calculated amount each month, you’ll need to complete Form 433-F, Collection Information Statement, which obtains your current financial information to determine how to pay your tax bill. 

For debt greater than $50,000, you will usually need to submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, which obtains your current financial information to determine how to pay your tax bill. The IRS will also examine any meaningful assets you have that can be sold to pay down your balance and then set up an installment agreement. 

Tax Help for Those Seeking an Installment Agreement 

If you know you won’t qualify for tax debt settlement, an IRS installment agreement may be your best option to help manage your tax debt. An IRS installment agreement can truly be helpful to many taxpayers struggling with their tax debt. The most important thing to remember is to always make your installment agreement payment. If you default on your agreement, it may be terminated, and the IRS may begin enforcement actions. Be sure the installment agreement terms are viable for your own financial situation. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt. If you need tax help, contact us for a free, no-obligation tax consultation today. 

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How Tax Relief Works

how tax relief works

Owing the IRS can be one of the most stressful situations a taxpayer can face. Recent data shows that American taxpayers owed over $114 billion in back taxes, penalties, and interest in 2020. Much of this debt can be attributed to late filing, mathematical errors, and underreported income. Whatever the reason for owing taxes, many taxpayers may find themselves considering tax relief when their tax bills get too large to pay. Here’s an overview of what tax relief is and how it works. 

What Is Tax Relief? 

The phrase “tax relief” can mean many things. When speaking of tax debt, tax relief is when your tax debt is managed, settled through negotiations, or paid down with payment plans. Tax relief programs were created for taxpayers who cannot afford to pay their tax bills, as well as those who have overwhelming and overdue tax bills. 

How Does Tax Relief Work? 

Tax relief is not a “one-size-fits-all” program. Every tax relief program works differently, and the process will also differ depending on the individual taxpayer’s situation. Here we will review the most common tax relief policies and programs. 

Offer in Compromise (OIC) 

An OIC is the most popular form of tax relief as well as the least likely option for taxpayers since most OICs are denied by the IRS. An OIC allows you to settle your tax debt for less than what you owe. When selecting OIC candidates, the IRS will examine your ability to pay your tax bill, your income and expenses, and the value of your assets. There are some basic requirements for an offer in compromise including: 

  • Must pay a $205 nonrefundable application fee 
  • Must make a nonrefundable initial payment 
  • Must be current on all tax returns 
  • Must not be in an open bankruptcy proceeding 

If the IRS deems that you cannot afford to pay your tax debt, or that paying your tax debt will result in financial hardship, then it may accept your offer in compromise. If this happens, they will cease collections. 

Currently-Not-Collectible (CNC) Status  

In some cases, you cannot afford both your tax bill and your expenses. If this happens, you can request a CNC status on your account, which delays collections. The IRS will request information regarding your income and expenses to determine your eligibility. If approved, the CNC status will temporarily cease collections on your account. However, they will continue to assess interest and penalties to your account. They will continue to review your income each year to determine if you are still eligible for CNC status. They can also still file a tax lien against you during this time and keep your tax refunds to apply them to your tax bill. 

IRS Installment Agreement 

An IRS installment agreement allows you to pay your tax bill, plus accrued interest and penalties, over a set period of time. A short-term payment plan must be paid in 180 days or less. To qualify for a short-term installment agreement, you cannot owe more than $100,000 in combined tax, penalties and interest. A long-term payment plan can be paid over 180+ days. To qualify for a long-term installment agreement, you must not owe more than $50,000 in combined tax, penalties and interest. While an installment agreement does not reduce your tax bill, or exclude you from penalties and interest, it might be your next best option to pay off your tax debt.  

Penalty Abatement 

Sometimes life gets in the way of responsibility. Maybe you didn’t file your taxes for one year, or you forgot to pay your tax bill. If you have an otherwise clean record with the IRS, you can request a first-time penalty abatement, which waives a tax penalty or refunds you for one already paid for. Typically, if you meet three requirements, you should qualify for this tax relief option. 

  1. You are current on your tax return filing. Tax extensions are fine.  
  1. You are current on your tax bill or have a payment plan in place. 
  1. You have a clean record with the IRS. This means no penalties during the three tax years before the year you received a penalty.  

If interest accrued from a failure-to-pay or a failure-to-file penalty, and you receive penalty abatement, then the interest associated with the penalty abatement will also be forgiven.  

How Do I Proceed with Tax Relief? 

If one of these tax relief options sounds like they can be of help to your tax situation, you should consider pursuing it. Most of these options require nothing to lose, financially speaking. Dealing with the IRS on your own can be intimidating, time-consuming, and stressful. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success. If you need tax help, contact us for a free, no-obligation tax consultation today. 

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Don’t get Taxed twice when making Non-Deductible IRA Contributions

IRA Contributions

Individuals that earned income throughout the tax year have the option to make non-deductible (after-tax) contributions to an IRA and benefit from tax-deferred growth. One of the most common risks that taxpayers take is paying additional taxes when withdrawing their money from their retirement accounts. Before making after-tax contributions to a traditional IRA, it is important for taxpayers to have an understanding of the rules and how to avoid the double tax trap on withdrawals.

There are certain contribution rules and limits that most taxpayers are not aware of with the IRA withdrawal process. Here are the rules taxpayers need to know about when making non-Roth after-tax IRA contributions:

  • Individuals are required to have earned an income.
  • The deductibility phase-out is determined on the filing status, income, and whether or not an individual is eligible to participate in a retirement plan at work.
  • Contribution limits are the lesser of: $6,000 (plus $1,000 if age 50+) or earned income and apply to aggregate additions to IRAs.

Certain financial institutions where an IRA is kept could cause certain issues such as the institution restricting an individual to add more than $6,000 per tax year. Banks also do not track, report, or verify if an individual made a pre-tax or non-deductible IRA contribution. The responsibility is left up to the taxpayer.

For those who choose to make after-tax contributions to an IRA, are required to give the IRS a heads up that they have already paid taxes on those dollars by using Form 8606. Individuals who fail to report, track, and file the form will most likely lose the ability to shield part of their IRA withdrawal from a tax penalty when the money is withdrawn.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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The Complete Guide to Hiring a Tax Professional

Most people require assistance when it comes to preparing and filing a tax return. Some may even find themselves having to provide additional information to the IRS and do not know what it is or where to find it.

Hiring a tax professional could save individuals both time and money when dealing with the IRS. Tax professionals can also prepare tax returns, help file income taxes, and assist taxpayers when it comes to dealing with the IRS, tax notices, tax liabilities, audits, and more.

The Benefits of Hiring a Tax Professional

Types of Tax Professionals

There are various types of tax professionals who specialize in focused areas of tax relief or tax prep and carry specific professional licenses.

  • Certified public accountants or CPAs can provide a variety of services such as:
    • Maintaining financial records.
    • Examining financial statements.
    • Providing auditing services.
    • Preparing tax returns.
  • Some CPAs specialize in tax planning and preparation such as:
    • Tax audits.
    • Payment and collection issues.
    • Appeals.
  • Enrolled agents are trained to find federal tax matters and are licensed by the IRS. Enrolled agents can assist with the following:
    • The preparation of both individual and business tax returns.
    • The representation of clients.
    • Other aspects of being a tax professional.
  • A tax attorney is licensed by the state to practice law. Most states require an attorney to have a law degree and pass a test administered by the state (bar exam). Tax attorneys can assist taxpayer with:
    • The preparation of tax returns.
    • Tax planning.
    • Providing advice to clients on long-range strategies for reducing their taxes.
    • Like CPAs and EAs, tax attorneys have unlimited rights to represent a client before the IRS.

Areas of expertise

There are a range of services that tax professionals can provide to taxpayers that can help them understand their taxes better. Based on what service you need, choosing the right tax professional or tax preparer can help you get back on track with your taxes, small business, and much more.

  • Enrolled Agents are IRS-authorized tax professionals who work alongside the U.S. Department of the Treasury by providing representation to individuals who need tax assistance.
  • Certified Public Accountants (CPAs) have state certifications to practice accounting. These experts can help individuals navigate certain tax situations. CPAs are licensed to represent taxpayers before the IRS.
  • Retirement tax professionals can help individuals know how their retirement options will impact their taxes. These types of tax professionals have received advanced training in tax preparations specifically for retirement plan contributions, distributions, and rollovers.
  • Small Business/Sole Proprietor tax professionals specialize in working with small businesses’ tax returns and educate their clients on how to properly prepare both their personal and company returns. These types of tax professionals have specialized training in sole proprietors, partnerships, and S corporations.
  • Investment Income tax professionals specialize in big or small investments, and gains or losses. These tax professionals also show your current and future tax situations.
  • International Taxation tax professionals assist individuals who have lived or worked abroad. These tax professionals are trained in international taxation which includes, claiming foreign earned income exclusions, the foreign tax credit, or treaty benefits for nonresident aliens.

Professional Licenses

Enrolled Agents (EAs) and Certified Public Accountants (CPAs) are both experienced professionals who maintain high ethical standards. The main difference between an EA and CPA is that an EA specializes specifically in taxation. CPAs can provide a wider scope of tax services for individuals.

Working with an EA would be beneficial for those who have IRS issues such as individuals who are in collections or dealing with an audit with the IRS. An EA would be best suited for someone who needs assistance with the IRS to help them with their tax concerns. EAs are also a great option for those who need tax preparation assistance and planning advice for both individuals and businesses.

CPAs specialize in tax preparation that can help individuals identify both their credits and deductions that can help them qualify for an increase in their refund or help lower their tax bill. CPAs are also beneficial if someone needs their tax information compiled, reviewed, or audited. 

When should I hire a Tax Professional?

You should hire a tax professional if you are short on time, are unsure how to file your taxes correctly, or feel overwhelmed by IRS forms with preparing your taxes. Tax professionals can help answer tax questions that you may have and even resolve most tax issues you may have.

The tax code can be very complicated and if you are unsure on how to handle your tax matters, a tax professional can assist. For example, a tax professional can help reduce the risk of any audit and know how to deal with the IRS on your behalf if you do end up being audited. Tax professionals can also help taxpayers avoid making costly mistakes on their tax return such as missed deductions or triggering an IRS letter. Tax professionals can also review previous tax returns to see if there were any errors and needs to be amended.

How to find the right Tax Professional for you

Individuals searching for tax assistance should follow these steps in order to find a tax professional who best fits their needs:

  1. Confirm your preparer has a tax identification number (ITIN).
  2. Make sure to confirm tax fees to ensure you are not being overcharged.
  3. Avoid tax preparers who do not e-file tax returns.
  4. Make sure that your tax preparer signs their name and provides their Preparer Tax Identification Number (PTIN) on your tax return.
  5. Make sure your tax professional can respond to the IRS. Enrolled agents, CPAs and attorneys that have a PTIN can represent you when it comes to IRS audits, payments, and collection issues.

10 Questions to ask a Tax Professional

  1. Do you have an IRS-issued Preparer Tax Identification Number (PTIN)?
  2. How do you keep up with the latest tax law? Are you regularly taking education courses?
  3. Do you offer a free initial consultation?
  4. Will you be the one preparing my return or someone in your office?
  5. Do you offer IRS e-file, and will my tax return be submitted to the IRS electronically?
  6. Will you keep my records and receipts on file? How long will you keep my records for?
  7. When do you require payment?
  8. When can I expect to receive my completed tax return?
  9. What happens if I get audited?
  10. Do you outsource your tax preparation?

Things to look out for when hiring a Tax Professional

Taxpayers should be aware of any red flags they experience when looking to hire a tax relief professional. Here is what individuals should look out for before hiring a tax professional:

  • Check the preparer’s qualifications.
  • Review the preparer’s history.
  • Ask about services and fees.
  • Make sure that the preparer offers e-filing.
  • Ensure your preparer has open availability if you have additional questions regarding your taxes.
  • Never sign a return if your preparer has added their name or PTIN.

How much does it cost to hire a Tax Professional?

The average cost of hiring a tax professional will depend on the complexity of the case that they are working on.

Consequences of not Hiring a Tax Professional

The federal tax penalties you could face by not hiring a tax professional to help you prepare your taxes could far outweigh the cost of soliciting tax help. Here are the repercussions individuals could face if they choose to not hire a tax professional:

  • Filing your own taxes could be time-consuming and confusing if you have never filed before.
  • You can miss out on tax preparation fees that could have been deductible.
  • You could miss out on certain credits or deductions if you are not aware of them.
  • If you get audited, you will not have a tax professional that can assist you through the process.
  • Filing your own taxes could lead to you making avoidable mistakes that could cause you problems with the IRS down the road.

Tax Relief Services at Optima Tax Relief

Optima Tax Relief offers tax relief services to individuals who are struggling with their IRS or state tax debt. Taxpayers that need assistance with tax preparation, setting up a payment plan with the IRS, getting out of collections, resolving an audit, or are looking to see if they qualify for a possible reduction in their total tax debt, should consider using Optima’s services.

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What Taxpayers need to know about Their Right to Finality

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

For taxpayers who have been working with the IRS, it is important for them to know that they have a right to finality. Specifically those who have had their tax return(s) audited by the IRS should know that there is a Taxpayer Bill of Rights in place to protect them.

For taxpayers currently in the audit process, here is what you need to know about your right to finality:

  • Taxpayers have the right to know
    • The maximum amount of time they have to challenge the IRS’s position.
    • The maximum amount of time the IRS has to audit a tax year or collect a tax debt.
    • When the IRS has finished an audit.
  • The IRS typically has three years from the date that a taxpayer files their return to review for an additional tax for the year in question.
  • There are very few exceptions when it comes to the three-year rule. An exception would be considered if a taxpayer fails to file a return or files a fraudulent return. In either case, the IRS would have an unlimited amount of time to assess tax for the tax years in question.
  • The IRS generally has 10 years from the date of assessment to collect unpaid taxes. It is important for a taxpayer to know that the 10-year period cannot be extended unless a taxpayer enters into a payment plan or the IRS obtains court judgments.
  • A 10-year collection period may be suspended when the IRS cannot collect money because a taxpayer has an ongoing bankruptcy or there’s a collection due process proceeding involving the taxpayer.
  • A taxpayer will only be subject to one audit per tax year. The IRS has the ability to reopen an audit for a previous tax year if the IRS deems it necessary.

If you need tax help, contact us for a free consultation.

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