Five Reasons the IRS Abates Penalties

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Receiving a penalty from the IRS can be devastating, especially when you don’t have the means to repay it on time. A penalty makes it harder to clear your outstanding taxes since it attracts further penalties and interest until you repay the debt fully. However, it is possible to apply for and get relief/abatement from a tax penalty if you show that you made an effort to comply but could not do this because of circumstances you could not control. Once you get the notice of penalty, check all the details to ensure they are correct and see what you can resolve. You can receive penalty relief for the following tax issues:
  • Failure to pay outstanding taxes on time
  • Failure to file tax returns on time
  • Failure to deposit specific taxes according to requirements
  • Other applicable penalties from the above
After assessing the notice, you (or a tax relief specialists acting on your behalf) can submit a written request seeking penalty abatement. This article discusses the main reasons which IRS accepts for penalty abatement.

Reasonable Cause

If you have reasonable cause for not paying, filing or depositing on time, your application must demonstrate the reasons for the delay/non-payment. Some acceptable reasons include:
  • Travelling abroad/out of the country
  • Being incarcerated
  • Being seriously ill/dealing with the serious illness of a close family member
  • Death of an immediate family member
  • Destruction or theft leading to loss of documents
Depending on your reason above, you should attach proof in the form of insurance claims, doctors’ reports and hospital records, a death certificate, or pictures of floods/hurricanes leading to the destruction of documents. The IRS evaluates whether the person acted prudently according to the circumstances but could not because of circumstances beyond their control. They will also check whether the taxpayer could have foreseen the event causing non-compliance and what steps they could have taken to ensure compliance.

Statutory Exceptions

Congress may provide statutory exceptions, giving taxpayers relief from tax penalties after major disasters like fires, hurricanes, earthquakes, and floods.

Administrative Relief

Qualified taxpayers can receive an administrative waiver called First Time Abatement (FTA) for penalties for failing to file, pay, or deposit taxes. Eligible taxpayers are those who show all of the following:
  • The taxpayer filed all returns or extensions
  • The taxpayer has paid or made arrangements to pay all outstanding taxes
  • The taxpayer was not required to file returns or was not assessed for penalties for three tax years before the year attracting the penalty

Correcting IRS Errors

The IRS must abate any penalties assessed because of an error in the written advice given by an IRS officer or employee in their official capacity. Where appropriate, the IRS may also consider abatement if the taxpayer shows they relied on an IRS officer’s oral advice. The taxpayer must prove that they exercised ordinary prudence and business care considering their situation, the advice rendered and the penalty. They will also consider the taxpayer’s filing and payment history and whether they received the correct information in written format.

Relying on a Tax Advisor

A taxpayer may receive limited penalty abatement for relying on a tax advisor – but this cannot be the only reason given. If there is a failure to file, pay, or deposit taxes, the taxpayer is still held liable even if he/she relied on a tax debt relief advisor. Only accuracy-based penalties based on reasonable cause may be abated.

Get Professional Tax Liability Advice from Finishline Tax Solutions

If you have received a notice of tax penalty from the IRS, you may be able to get penalty abatement. There is no guarantee of abatement even when you have reasonable cause, but you can improve your chances by getting Finishline tax professionals to help you apply for an abatement. Even if the abatement is rejected initially, our professionals can help you to file an appeal, during which the IRS agent will assess the totality of your circumstance. Contact Finishline Tax solutions today to fix your taxes once and for all.

Offer in Compromise – Is this a good tax relief strategy?

An Offer in Compromise (OIC) is a helpful tax relief strategy since, if successful, it clears your outstanding tax debt completely. Most other tax relief options have an outstanding amount that may continue to accrue penalties and interest. However, before the IRS accepts your OIC application, you must go through various steps that include submitting extensive documentation to support your claim. The IRS determines whether or not your application will be accepted, but you can improve your chances by submitting a compelling application. In this article, learn how Offer in Compromise works as a tax relief solution and how our tax debt relief professionals can help you make your application.

What Are Offers in Compromise?

An Offer in Compromise (OIC) is an effective method to eliminate your tax debt. It is a federal program where the taxpayer settles the outstanding debt for cents to every dollar owed. Low-income families can pay their debt for considerably less than they owe. OIC is open to all income levels and ages, but the IRS does not accept all applications. Their acceptance rate changes from year to year, but it has accepted 25-45% of applications in the last few years.

Eligibility for Offers in Compromise

Several strict pre-qualifiers make a taxpayer eligible for tax settlement through OIC. First, the IRS looks at your reason for requesting OIC tax settlement, and they only consider applications where:
  • It is not certain that the IRS correctly assessed your outstanding taxes
  • It is not certain that the IRS will be able to recover the full amount, e.g. if you owe more than your assets and income
  • Paying off your tax debt in full will cause the taxpayer undue economic hardship – called effective tax administration
For reasons 2 and 3 above, the IRS also considers the following:
  • Whether you can pay and how much you may be able to pay
  • Your current income
  • Your current assets
  • Your current expenses
The IRS will generally accept OIC that meets the maximum amount you can pay within a reasonable period. You are ineligible for OIC settlement, however, if:
  • You have ongoing bankruptcy proceedings
  • You have not been paying your required installments/payments
  • You have not filed your federal tax returns
  • If self-employed with employees, you have not submitted the requisite federal tax deposits
Generally, the IRS only accepts offers in compromise greater than or equal to a tax liability’s collection potential.

How to Submit an Offer in Compromise

The smallest offer the IRS accepts as OIC depends on your financial ability. Businesses use form 433-B to reveal their financial state, while self-employed or employed wage-earners should use Form 433-A. You should reveal the following:
  • Income and expenses
  • If you declared bankruptcy
  • Whether you own a safe deposit box and its contents
  • If you have benefited from an estate, trust, or life insurance policy and its details
  • Any bank account balances, investments, available credit, and cash life insurance policies
  • Any tangible and intangible assets
College or private school expenses and charitable and voluntary retirement contributions are not allowable expenses. Once you have these details, it’s important to get a tax professional to help you assess the minimum offer value. Apart from the offer, you must submit several forms, including collection information statements, the application fee, and proof of payment of the first instalment of your offer. If you wish to pay a lump sum, the first payment should be at least 20 percent of the total offer. If the IRS accepts your OIC, you must pay the remaining amount in no more than five payments.

Get Help with Your Offer in Compromise at Finishline Tax Solutions

You can use the IRS OIC pre-qualifier tool to check whether you are eligible for OIC. However, note that eligibility does not translate to acceptance. For example, if you can pay your outstanding taxes through an instalment agreement, you don’t qualify for an OIC tax settlement. There are many steps to filing an OIC application and even appealing upon rejection. Our Finishline Tax professionals can help you with these steps to maximize your chances of a favorable outcome. Contact us today to get started.

Finding the Best Tax Debt Relief Solution

 

When you find yourself owing back taxes, you may be at a loss for how to proceed. Unfortunately, many taxpayers don’t know the tax debt relief options open to them until they face various tax debts as a result of IRS audits, fines, penalties, levies, or liens, as well as unpaid payroll taxes and IRS wage garnishment.

Regardless of your tax challenge, there are five primary methods to get tax relief when you owe back taxes. You may be able to take advantage of just one or two of these solutions according to your specific circumstances.  

#1 Offer in Compromise (OIC)

An Offer in Compromise is an agreement between the IRS and a taxpayer where the latter pays less than the outstanding taxes they owe. The IRS does not accept all applications for Offers in Compromise - the current success rate is only 25 percent. Still, if OIC is ideal for you, we can help you to settle the debt once and for all to avoid further accrual of penalties and interest on the tax debt.

#2 Penalty Abatement

You can apply for penalty abatement when the IRS tacks an automatic penalty onto your outstanding taxes without considering your situation/reason for nonpayment. A tax relief professional can help you to file ‘reasonable cause’, which is written proof explaining the reason for nonpayment. If successful, you will get the penalties removed (or refunded if paid) and have more time to pay your outstanding taxes.

#3 Installment Agreement

IRS Installment agreements get the best reception from the IRS since the taxpayer undertakes to pay the debt in full. You can choose to pay your outstanding taxes in manageable instalments over some time if you cannot afford to pay at once. You can also seek an extension on an existing installment agreement should your financial situation deteriorate.

However, note that you must apply and meet the requirements before IRS approves your installment agreement. Further, penalties and interest will continue to accrue on the outstanding amount until you have paid in full. 

#4 Currently Non-Collectible (CNC)

If you cannot pay your back taxes because your financial situation has deteriorated (e.g. if you lost your job), you can apply for a Currently Non Collectible status. CNC applications can be approved if you show that your total income is less than the allowable living expenses according to federal standards

If your application is approved, the IRS will grant you a reprieve from usual recovery and collection tactics. After 1-2 years, they will reassess your financial situation to determine whether you can resume payments. Also, you are required to notify the IRS if your financial situation improves. Note that penalties and interest continue to accrue while your account is in CNC status.

#5 Tax Audit Appeal

You can contest a tax audit if you feel that the IRS-recommended audit is inappropriate or incorrect. Disputed IRS audits are often settled when you initiate an appeal. Take advantage of the fact that the IRS prefers to resolve such issues because it is expensive, and they lose time and risk judgement against them. You need a tax professional who is familiar with the audit process to negotiate on your behalf.

#6 Innocent Spouse Relief

One spouse can apply for relief from tax liability or penalties for taxes filed jointly. However, you must prove that you were unaware of the understated income or taxes when you signed the tax return. A professional can help you to assess whether this avenue is right for you.

Conclusion

Regardless of the tax relief solution you choose, it is critical to use a reputable and experienced tax relief company. Check their reviews on independent review sites like the Better Business Bureau or get referrals from trusted people in your networks.

The most important thing to remember is that you’re looking for a solution that minimizes or reduces the penalties and interests on outstanding taxes to the barest minimum. That’s what a tax debt specialist can help you to assess according to your particular circumstances.

 

What You Need to Know About IRS Hardship

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Not every one that owes back taxes to the Internal Revenue Service (IRS) can make full payments in one fell swoop. The IRS has many avenues to pay back taxes in installments, but some people are still unable to clear their tax debt. If your current financial situation makes it difficult/impossible to pay back taxes and meet your daily living expenses, there are other avenues to explore. It is possible to apply for the IRS Hardship Program, which grants you temporary reprieve from settling your tax debt relief. Learn more about the IRS Hardship Program in this article.


What Is the IRS Hardship Program?


As mentioned, this program gives taxpayers temporary reprieve on back taxes they owe by placing their account in CNC status (Currently Non-Collectible). According to IRS Policy 5-71, your tax liability is considered CNC if you can show that paying the taxes will create hardship. If you have difficulty repaying back taxes, it may be better to pursue an Offer in Compromise (or settlement) before seeking CNC status. The OIC status allows you to pay a fraction of the debt (which you suggest according to your financial ability) for the liability to be cleared. Meanwhile, the CNC status is temporary; if your financial situation gets better, you will resume payment at a later date. To apply for CNC status, the IRS requires that you fill one of three forms: Form 433A for individuals, Form 433F for self-employed individuals, and Form 433B for C corporations, S corporations, and partnerships looking for hardship status.


Assessing Financial Health for IRS Hardship Applicants


When you apply for the Hardship Program, the IRS assesses the application to determine whether you qualify for CNC status. Apart from living expenses, the IRS considers the following:

  • Number, age, and health status of dependents where applicable
  • Your employment status and age
  • Health status of close family members
  • Cost of living in your locale
  • Any extraordinary expenses

They will assess your financial health, checking whether you are able to borrow against assets you own, all your income sources, or inability to work harder because of a medical condition. You should be able to show that:

  • You lost your job and are/aren’t receiving unemployment benefits
  • Your income has declined
  • You have been looking for a job with no success
  • You were forced to wind up your business
  • You lost your home in foreclosure or sold it at a loss
  • Your employer went out of business

Protections of the IRS Hardship Status


During IRS Hardship, the IRS cannot seek repayment of your tax liability, whether through wage garnishment or seizure of property or assets. However, note that the tax liability is not forgiven, and penalties and interest on the loan continue to accrue. Every year, the IRS sends a bill showing the amount owed. You will pay that amount once the Hardship status is lifted. The CNC status can be held for ten years, and the IRS reviews your income/financial status every two years. They will lift the status if they believe you can now support yourself and dependents. At this point, you must resume payment. However, you can also pay down your debt if you have extra money while under CNC status. Making payments this way doesn’t affect your CNC status until the next scheduled review.


Need to Handle Your Tax Liability? Look for Tax Professionals


When you are unable to pay your tax liability, it can be difficult to decide the next steps to take. No two people have the same financial situation, which is where tax professionals come in. At Finishline Tax Solutions, we can represent your best interests to apply for tax relief and negotiate on your behalf with the IRS. Our job is to determine the best solution and even file an Appeal if your request for CNC status is denied. We can also help you to prepare and file your taxes in time.


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Wage Garnishment: How It Works and What You Can Do

Wage garnishment is a court-ordered process that mandates your employer or bank to withhold a portion of your earnings/funds in your account and remit directly to a creditor. This happens until the debt is paid or you have resolved other obligations/conditions set by the court. Wage garnishment is quite common – one study revealed that over 7 percent of 13 million employees assessed had had their wages garnished. Common reasons included consumer debt, student loans, tax penalties/levies, and child support. Even when subjected to wage garnishment, you have certain rights and limits to be observed, and there are steps to follow to reduce the effect of wage garnishment. Learn more in this article.


How Wage Garnishment Works


In most cases, the creditor must sue you for nonpayment in court to receive a court order to institute wage garnishment. However, if you have tax debt, outstanding federal student loans, or child support, the creditor can send a notice to force garnishment even without the court order. Once the notice is served, garnishment begins within 5-30 days according to the details of the notice. In some cases, you may have to pay interest on the debt and court fees. Wage garnishment happen in two ways:

  • Wage garnishment – this happens to people in formal employment. The creditors legally require your employer to remit a portion of your earnings for debt repayment
  • Nonwage garnishment – this happens to people in non-formal employment. The creditors legally require a bank to remit funds in your account as a bank levy for debt repayment


Caps on Wage Garnishment


There are federal limits to the amounts that a creditor can request during wage garnishment. This is done on disposable income, which is the amount left after statutory deductions. It happens as follows:

  • Debt Cap on Garnishment
  • Common consumer debts (credit card, medical bills, unsecured loans, etc.)
  • The lower of 25% or the amount above (30 x federal minimum wage). Garnishment is not allowed if weekly earnings are below (minimum wage x 30)
  • Alimony and child support
  • 50% if you support another spouse/child; otherwise, 60%. A further 5% may be imposed if payments are delayed beyond 12 weeks
  • Tax levies/debt Up to 15% as determined by the IRS
  • Federal student loans 15%

States also impose state exemptions and limits on wage garnishment. Non-wage garnishment is less restricted and regulated, but it is less common.


What Can You Do?


Even though you have legal rights in wage garnishments, most states require that you are aware of them, and the onus to exercise them is on you. Some common rights include:

  • You must be legally notified of the garnishment
  • You can dispute inaccurate information or wrongful debts
  • Certain incomes cannot be subjected to garnishment, e.g. veteran’s benefits, disability, or social security. However, they could still be seized from your bank account
  • You can’t be fired for one garnishment, but this protection ceases for multiple garnishments

If you believe a garnishment judgement was issued erroneously, it is possible to challenge the notice. Read the notice carefully to ensure the information is accurate. Next, consider the amount to be deducted and how it affects your finances. It may be helpful to consult an attorney, tax relief professionals (if the debt is tax-related), or your local legal aid. With a professional’s help, you may challenge the judgement, negotiate a different settlement with the creditor, or accept the garnishment. You can also repay the debt in lump-sum to ease/prevent the garnishment. It is also helpful to also be honest with your employer about the circumstances behind the garnishment. This prevents your employer from drawing a worse conclusion and penalizing you for it.


Conclusion


Creating a budget and staying on top of your financial obligations is the best way to prevent wage garnishment. However, if you find yourself in this situation, a professional can help you to navigate it so that you are not affected too adversely. Do you need help to challenge or deal with wage garnishment? Contact us today to take advantage of our tax relief services and map your journey to better financial health.


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How Long Can the IRS Audit?

It can be distressing to learn that the Internal Revenue Services (IRS) is auditing you or your business. According to tax law, the IRS has three years from the date of your audit notification to complete your audit. How long your IRS audit takes isn’t as simple as that, however. Learn more about how long IRS audits take in normal and special circumstances.

How Long Does a Typical IRS Audit Take?


The three years mentioned above is the statute of limitations of the audit, i.e. after you are notified, the IRS has three years to complete the audit and report its findings. During this time, they must assess and/or charge any additional taxes for the return that is under audit. Even though they have three years, it isn’t uncommon for IRS audits to close within one year. According to the IRS training manual, IRS agents are required to close audits within 26 months of opening them. Therefore, typical audits take 1-2 years from the later of the due date of the return or the date it was filed. There is an exception – if tax fraud is suspected, the statute of limitations is suspended. Should the IRS find large amounts of unreported money, they have three more years to investigate. Still, they are more likely to complete their investigations before that timeline, to adhere to their training guidelines.


Types of Audits


Depending on the circumstances under investigation, the IRS conducts three types of investigations. These are:

  • Mail audits – the IRS lets you know that your returns will be audited and ask you to send supporting documents depending on the issues. These are often completed in 3-6 months.
  • Office audits – you or your tax professional meets an IRS agent at their office, usually within one year of filing your returns. If there are no extraneous circumstances (e.g. offering incomplete information) these are completed in 3-6 months
  • Field audits – the IRS agent meets with you or your tax professional in your home or business premises. These take the longest – often one year – to complete. Field audits are reserved for complex situations, usually with small or medium-sized businesses. They can take multiple years depending on the extent of investigations.

Extension of Audit Timelines


In some cases the statute of limitations of 3 years (or 6 years in the case of suspected tax fraud) can be suspended. Various variables can lead to this, but the following are the most common reasons behind audit delays:


Multiple Adjustments


If there are more adjustments to be made on your returns, you can expect the audit period to take longer. Where there are more adjustments, the IRS agent must look over the financial records with greater detail. Sometimes, they may need to open previous returns, and this takes more time.


Small Business Audit


It takes more effort and time to audit a small business compared with auditing individuals. Tracking small business income is more difficult compared to checking out wage income from salaried people. Some small businesses don’t have proper records, so the IRS agents must check websites, client records and bank records to verify that all business income has been reported. If the business has many cash transactions, it can take time to verify the income reported versus the income earned.


Pursuing Penalties


The IRS may pursue penalties if there were a lot of adjustments to be made on your return. Pursuing penalties makes the audit process take longer, since they will have to make a case for the proposed penalties. It takes some time for the IRS to decide the penalties they wish to pursue if your returns had significant adjustments. The worst penalty is fraud, and fraud case can last years, especially if the IRS pursues criminal charges. This rarely happens, however.


IRS Audit Help


If you have a problem filing your returns, you should defer to tax professionals to ensure your returns are filed correctly. And if you have received an audit notice, our tax professionals at FinishLine Tax Solutions can help you get through the process fast and easily. Contact us today to get your IRS audit help.


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4 Helpful Small Business Tax Preparation Tips

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Taxes are complex. Tax laws are constantly changing. Keeping on top of these rules can seem like an uphill struggle. Small business owners face numerous challenges while preparing and filing taxes. They have limited resources and have to juggle multiple tasks.

Many last-minute tax filers scramble to make the deadline. They make mistakes and end up earning the wrath of the IRS.

They say preparation is half the battle. Tax preparation does not have to be time confusing or complex. Start preparing your taxes early to avoid last-minute confusion and ensuing chaos. Break down large tasks into bite-sized tasks. Carry out a task every day.

Here are some tips to help you prepare your taxes effectively.

1. Get Organized

Open a savings account specifically for taxes. You can use account funds to meet your tax obligations as a business owner. Start making estimated quarterly tax payments, or you may be subject to penalties. Keep your business and personal accounts separate.

Effectively track business expenses. Get sufficient documentation for them (for example, travel expense vouchers for travels that occurred during the financial year). Keep personal, and business expenses separate. To reduce paperwork, digitize receipts.

2. Hire a Professional

Preparing taxes can feel like an insurmountable task. You need to check transactions appearing in your books and verify and validate them. This is a time-consuming task. As a business owner, you have better things to do than maintaining your financial records.

If you have too much on your plate, consider hiring a professional such as a CPA or tax attorney. These professionals keep on top of tax rules and regulations. Your CPA will prepare your taxes, help you identify ways to minimize your tax liability, and ensure tax compliance.

3. Leverage Technology

If you rely on traditional paper-based methods, you will end up getting bogged down by paperwork. Paper-based methods are inefficient, and you need physical space to store your files and documents. Paper documents can be easily misplaced, stolen, or damaged.

Automate your document management processes. Using electronic statements is a great way to eliminate paper for good.

Use accounting software. Accounting software will allow you to access accounting data anytime, anywhere, foster collaboration, improve accounting security, and improve bookkeeping and accounting accuracy.

4. Stay Informed

Stay up-to-date on industry developments. Follow eminent people in the financial world and affinity groups that publish articles, information, and opinions.

Do not give attention to preposterous rumors. It is best to hear it straight from the horse’s mouth (in this case, the IRS) so you are sure it is true. Visit the IRS website to watch videos and participate in webinars.

Need back taxes help? Have you got tax problem? Look no further than FinishLine Tax Solutions. We will create a tax strategy customized to your specific needs.

Why Hire a Tax Professional?

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Filing back taxes can be both tedious and confusing, especially for non-professional who don’t customarily stay up-to-date with tax code changes. There are many tax laws, and all must be accounted for each time you file to avoid hefty fines or interest on unpaid tax. However, taxes are as inevitable as death, and unfortunately, ignorance is no defense where they are involved. This is why some people choose to enlist the services of tax professionals or tax preparers during filing season. Apart from that, a helpful tip is to stay prepared for filing by ensuring you keep your bills and receipts for deductible expenses, especially if you run a small business. If you’re wondering what the value of a qualified tax professional, below is a list of benefits you can enjoy from their services.

Saves Time

According to the IRS, the average consumer spends 13 hours to file their tax returns, although some estimates quote as high as 24 hours. If you’ve tried to do your own taxes, you have probably taken longer than one day to do it, especially if you have a small business or rental income to report. Assuming your time was worth $20 per hour, you are easily spending $260 and above to file. Because you aren’t conversant with this process, you spend double or triple the amount of time a tax professional would take. The tax preparer works efficiently and does the correct thing on the first try, saving a ton of time and effort.

Cost is Tax-Deductible

If you itemize your expenses, the cost of hiring a tax relief specialists is a deductible expense on Form 1040. Therefore, you end up paying less tax because of this deduction.

Reduces Complexity

As mentioned, filing taxes is a difficult and complicated process. For the average consumer, there are hundreds of details to consider, and it’s very easy to make a costly mistake. What’s more, the Tax Code is updated annually, and you may not be aware of how such changes affect your next tax returns. This gets even more complex if you did any of the following:
  • Lost or made money in investments
  • Started or sold a small business
  • Sold or bought a capital asset
  • Bought or sold real estate
  • Changed your marital status
  • Changed your residence so that your income and residence are now different
A tax professional handles tax matters on a daily basis. They stay abreast of all tax codes and how they affect various consumers. Therefore, they are best placed to advise you on the impact of these changes and how you should file your next returns. Should you choose to do it yourself, always check how such changes affect your next returns.

Finds Relevant Deductibles and Credits

There are tax-deductible expenses and tax credits that most taxpayers qualify for, but the system and common tax software may not be updated on them. Therefore, you lose precious money and end up overpaying your taxes when you don’t claim all your relevant deductibles and credits. A tax professional is aware of the latest credits and deductibles and how they affect various individuals and businesses. Therefore, he/she can ensure that you take advantage of them to reduce your payable taxes. If you have overpaid in the past, he/she can also help you to file amendments and request for refunds.

Assistance with Audits

Finally, should you ever be audited, a tax professional can work with you and your business to get the relevant bills, receipts and documents to support your returns. He/she can represent you when dealing with the IRS to ensure that you are protected. While only 1 percent of taxpayers are audited, it is best to have a tax professional if you ever land in these murky waters.

Conclusion

Tax accountants and tax professionals are real people, which means you can defer to them with any questions or concerns you have. Before filing past taxes this year, talk to a tax professional and find out how they can help you wade the murky waters of taxation reporting.

5 Reasons the IRS Will Audit You

An IRS audit reviews an individual's or business's financial accounts to check if the information is reported accurately. The IRS can conduct a field audit at your home, office, or accountant's office. Sometimes the IRS conducts surprise audits, but most of the time, The IRS selects taxpayers based on suspicious activity.

Before you start preparing for tax season, take a look at some red flags likely to land you in the audit hot seat.

1. Math Errors

Math errors include subtraction, addition, multiplication, or division error, a transcription error in the same form or another form, an inaccurate use or selection of information from tax tables, and claiming credits or deductions exceeding limits.

To steer clear of mistakes, double-check your numbers. If you have too much on your plate, get professional help or use tax preparation software to avoid errors.

2. Unreported Income

You may be tempted not to report part of your income to decrease your tax liability, but beware-the IRS is watching your every move.

The IRS receives copies of your income reporting forms (including W-2, Form 1099-INT or 1099-DIV, and Form W-2G).

The IRS also receives information about your K1 income and foreign accounts. If you fail to report any income, an IRS agent may soon show up at your door.

3. Overstating Deductions

If you report false deductions, the IRS will become suspicious. Whenever you make a large donation, get a receipt so you can substantiate your claims. Keep receipts of business expenses. If you donated an item valued at more than $500, submit Form 8283 with your tax return.

4. Claiming Home Office Deductions

A self-employed taxpayer can deduct their home office expenses from their business income only if their home office qualifies (if they use it regularly and exclusively for their business).

Many taxpayers who claim home office deductions get the rules wrong. Fraudulent taxpayers try to claim deductions for expenses that do not qualify.

The IRS comes down heavily on people who over report deductions. If you try to claim a false deduction, the IRS can charge you with tax fraud.

5. Claiming Earned Income Tax Credit

The Earned Income Tax Credit or EITC is targeted at low-income taxpayers. If your investment income exceeds $3,650, you do not qualify for the EITC. Claiming the credit will trigger a tax audit.

Can't make heads or tails of tax rules? Let FinishLine Tax Solutions help. We offer end-to-end tax relief solutions. We will help you identity tax-saving investment avenues and ensure tax compliance.

What to Do When Your Business Owes Back Taxes

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Most small business owners struggle to manage their taxes and other accounting functions. Usually, you must accomplish many roles with limited staff, and so non-immediate administrative functions take a back burner in the face of operational crises.


The IRS doesn’t care about the demands on the plate of a small business owner, only that you fulfill your obligations on time and in full. Otherwise, you risk accruing many penalties, fines, and interest on back taxes.


If you ever find that your small business owes overdue taxes, follow these steps to get back into the IRS’s good books and keep your business from losing valuable funds. The thing to remember is that the IRS doesn’t want to have to close your business.


Therefore, you can take certain steps to make things right and keep your business running. Here’s what you should do:


1. Stay in Touch


You must be proactive about contacting the IRS if you haven’t filed or paid taxes on time. Even if the agency goes quiet, they will always come back – and often at an inopportune time for you. Meanwhile, your interests and fines keep increasing, and they may create a debt so big your business can’t afford to pay it.


Note that the IRS has massive legal powers to collect overdue taxes. They can take almost anything you own and freeze your assets without needing a court order. They can also close down your operations and seize assets to pay off the tax debt.


2. Take Advantage of Time


Because the IRS is one agency managing thousands of businesses, you can take advantage of time, which is on your side if you act right away. Often, you’ll receive computerized tax bills followed by phone calls. Only if you ignore these will a person be assigned to your case.


From the time you notice there’s a lapse in your taxes, notify the IRS (or respond to their notification) and always cooperate. Provide the financial information that IRS collectors ask for – you should never lie to the IRS, but be careful not to disclose too much. Only provide the information they have asked for, unless you have been served with a formal summons.


3. Negotiate for a Discount or Payment Plan


In most instances, the IRS allows business owners to pay overdue taxes in monthly instalments. The only downside is that interests and penalties continue to accrue on the outstanding amounts. If you are able to make a single payment, you can also ask for a discount on the total amount owed.


About 25 percent of businesses are successful in applying for the Offer in Compromise through the OIC process. This is a lengthy formal process that allows businesses in a precarious financial situation to apply for the IRS to accept a fraction of the tax they owe.


When the IRS assesses your application and believes that they won’t collect more in future, they will agree to the Offer in Compromise to settle your tax debt.


4. Request for “Uncollectible” Status


If your business is in dire shape, you can request the IRS to temporarily place your account under the “Uncollectible” status. If they agree, they will stop collection notices for some time. However, you will still owe the penalties and tax by the end, and interest will accrue for the period the account is “uncollectible”.


In the direst circumstances, you may have to file for bankruptcy. This is a complex and complicated legal process that must only be a final resort. In some cases, it can wipe out your tax debt, but this comes at a high price. Always consult a tax debt agency before filing for bankruptcy.


5. Seek Professional Assistance


Once you find out that you owe overdue taxes, your best move is to consult tax debt professionals. A tax debt agency can help you assess your financial situation and the taxes you owe and advise you on the best cause of action. Professional tax preparer s in the team can also file and negotiate on your business’s behalf with the IRS.

Once you sort your back taxes, prioritize tax payments in future and ensure you file your returns in time.


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