Articles Posted in Tax Debts

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While there’s no way for an individual to completely avoid paying taxes, there are ways to cut and reduce the amount of taxes an individual owes. By being proactive and engaging in tax planning, an individual can often reduce his or her tax liabilities substantially. It’s important to note, however, that there are creative strategies that can be employed to reduce the amount of taxes one pays and then there are those that are questionable or outright illegal.

Simply failing to file and/or pay one’s taxes is never a good idea. Not only is an individual likely to accrue costly fees and penalties, but he or she may also face criminal charges related to tax evasion. Additionally, it’s never a good idea to file or submit tax-related documents that contain false or doctored figures. Again, an individual who under- reports the amount of income or overestimates deductions will incur costly fines and penalties and may face charges of tax fraud.

In cases where an individual learns that he or she is being investigated or audited by the Internal Revenue Service, it’s wise to contact an attorney. It’s especially important to retain a strong legal advocate and representative if an individual is concerned that an IRS audit or investigation may result in the discovery of questionable or illegal tax-avoidance activities.

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For many who reside in the state of New York, one of their biggest fears is to be audited by the Internal Revenue Service. People who are concerned about this occurring probably believe that three years after a return is filed, they are in the clear. While it is true the statute of limitations for tax returns is generally three years, under certain circumstances it is possible that period could extend to six years. In some cases it could go even longer.

The audit period could extend from three to six years in situations where in completing the tax return, the tax player substantially understated his or her income. But just what does that mean? This situation arises when the taxpayer fails to account for more than a quarter of his or her income. The statute of limitations will start to run on either the date the filing is due or the date in which it is filed—whichever is later.

The IRS could also extend the audit period to six years in situations where the taxpayer has omitted more than $5,000 in foreign income. This might arise in situations where the taxpayer has accrued this income as a result of interest on an account that is overseas.

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Denial, avoidance and procrastination are all activities in which an individual may engage when faced with something that he or she would rather not deal with or do. However, such coping tactics are almost always sure to backfire and make an unpleasant or difficult situation even worse. This is especially true in cases where an individual receives communication from the Internal Revenue Service.

Anyone who opens their mailbox and sees a letter from the IRS is likely to panic. Whether an individual chooses to throw the sealed envelope away or simply disregard its message, ignoring the IRS can end up costing an individual hundreds to thousands of dollars in fines and, in some cases, a whole lot more.

Annually, the IRS claims to send “millions of notices and letters to taxpayers for a variety of reasons,” some of which may be minor or even positive in nature. Even in cases where an individual knows that he or she failed to file or pay taxes or expects bad news, it’s important toopen an IRS letter or notice as soon as possible and to contact the agency with any questions. This is especially true in cases where an individual believes that the IRS erred and an individual plans to dispute the issue in question.

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There are many scenarios that may result in an individual accruing tax debt. In cases where an individual is notified by the IRS via a Notice and Demand for Payment of an outstanding tax bill, it’s wise to address such matters in a prompt manner. At times, an individual may refute the amount or existence of tax debt. When contacted by the IRS, individuals who fail to take action with regard to an outstanding tax bill may be subject to fines and penalties including a federal tax lien.

Individuals who receive a Notice of Federal Tax Lien are likely to have many questions and concerns about how a lien affects their financial standing and credit. An attorney who handles tax issues can assist with problems that stem from and disputes related to tax debt.

When the IRS issues a tax lien, the government is effectively notifying other creditors of its legal right to a taxpayer’s property. A lien not only attaches to all of an individual’s existing assets, but also to any future assets that are acquired or purchased while a lien is still in place. Individuals who are subject to a tax lien are likely to encounter difficulty when attempting to secure a home or car loan or other lines of credit.

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Now is the time of year when taxpayers begin getting those dreaded letters from the IRS saying that they didn’t pay the taxes that they owed. In some cases, people might be expecting the letters, knowing that they didn’t pay their taxes in full.

But in other cases, people might believe that the letter was sent in error. In this case, the good news is that there are steps that can be taken in order to figure out if the IRS has made a mistake. Believe it or not, the IRS has been known to get it wrong from time to time.

Here is what you should do if you think that the IRS is after you for money you don’t owe:

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There are two common issues that arise when divorce and tax debt collide. One involves a spouse who finds out that he or she is on the hook for significant tax debt after signing jointly filed tax returns that were fraudulently prepared by the soon-to-be ex-spouse.

The other scenario involves a couple who has many years of unfiled tax debts and are wondering if the unfiled tax returns for the back taxes should be filed as joint tax returns or married filing separate returns.

When it comes to the first scenario, the good news is that the IRS changed its rules in 2013 and now makes it easier for innocent spouses to be let off of the hook for the other spouse’s bad deeds.

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There’s no end to items facing taxation – ones we may be unaware of. This includes unemployment benefits, forgiven debt, and certain Social Security benefits. With tax planning, we can minimize the amount of taxation owed and be better prepared for the next tax season.As welfare and public assistance benefits usually are not subject to taxation, it may seem surprising discovering that we owe taxes on unemployment benefits. Unfortunately, there’s little we can do to reduce the obligation to pay tax on unemployment received. It’s allowable to recover certain amounts paid in as nondeductible contributions to unemployment funds. Other than that, the way to lessen the amount of taxes we pay on these benefits in April is to have more taxes withheld from these benefits throughout the year.Taxation on debt forgiveness may also seem unfair. The reason we work with lenders to have debt forgiven is because we are struggling financially to begin with. However, coming to an agreement with banks and credit card lenders to have the debt forgiven usually leads to taxable consequences. This forgiven debt is in certain circumstances regarded as taxable income. Fortunately, there are exceptions to this rule. Debts discharged in bankruptcy are not subject to taxation. Forgiven debt concerning business real property or farms also is not necessarily subject to taxation. Certain type of student loan debt forgiveness does not face taxation. In the past, tax authorities did not tax forgiveness of debt concerning one’s principal resident. However, these protections expired in 2014.There are a large number of rules concerning taxation of Social Security benefits. This includes limits regarding the amount of income earned before taxation of these benefits occurs. We need to wait and see if legislators will raise these limits in the future.

Knowledgeable tax attorneys understand methods taxpayers can take to reduce tax liabilities and help in settling tax debt disputes. The tax code is so complex that usually only professionals routinely dealing with the tax code understand provisions taxpayers can use to limit their taxes.

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This week, actor Robert De Niro was hit with a tax lien from the IRS on his Manhattan condo for owing $6.4 million in unpaid taxes. De Niro took action right away to pay the debt, and his spokesperson said that the taxes were unpaid because he had not received the notices.

This isn’t the first time that a celebrity has run into trouble — or a misunderstanding — with the IRS. In fact, there are at least three lessons that celebrities have had the opportunity to teach us about tax liens, in particular.

1. Make sure the IRS has your current address.

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Tax debts are not always dischargeable in bankruptcy, but they can be. Determining whether your tax debts are dischargeable depends on a variety of factors, including the type of bankruptcy you file, the type of tax debt you have, how old the tax debt is and whether or not you committed tax evasion.

First, tax debts are more likely to be discharged if you file for Chapter 7 bankruptcy, which involves having debts completing discharged, than if you file for Chapter 13 bankruptcy, which involves creating a repayment plan to repay most of your debts over an extended period of time.

Additionally, each of the following conditions must also apply in order for tax debts to be discharged:

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A Staten Island lawmaker could see his political career come to a screeching halt after pleading guilty to tax fraud last month. U.S. Rep. Michael Grimm (R-NY) pleaded guilty to one count of aiding in the filing of a false tax return, in 2009.

Grimm, an ex-Marine and FBI agent, now faces a maximum of three years in prison, which would force him to resign from Congress. His sentencing date has been scheduled for June 8, where a judge will decide his fate.

However, a much worse outcome was avoided thanks to Grimm’s attorneys. Grimm was set to go to trial on Feb. 2 on a 20-count indictment for evading taxes by underreporting income, paying workers off the books and hiring undocumented workers.