Colorado Springs: Am I or Am I Not an Innocent Spouse?

 

Are you having to deal with daunting tax liabilities from unexpected issues stemming from a spouse's financial actions? The IRS offers a form of relief known as "Innocent Spouse Relief" to address such situations. This provision is designed to protect individuals from being unfairly held responsible for tax understatements or errors committed by their spouse on a jointly filed tax return.

To qualify for Innocent Spouse Relief, several conditions must be met. First, the understatement of tax must be solely attributable to the other spouse's erroneous items. Second, the innocent spouse must demonstrate that they were unaware of the inaccuracies at the time of signing the return and that it would be inequitable to hold them liable given the circumstances. Factors such as significant benefit from the understatement, desertion, death, or divorce are considered in the evaluation process.

Filing for Innocent Spouse Relief involves submitting Form 8857 to the IRS. It's a crucial step for those seeking to rectify tax issues without bearing the burden of their spouse's financial missteps.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA, CTRC

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

Colorado Springs: Why am I in IRS Collections?

 

Have you failed to pay your tax liability? The IRS will initiate a series of steps to collect the owed amount. Initially, you are sent a series of notices, starting with a CP14, which informs you of the balance due. If you do not respond or make arrangements to pay, the IRS escalates the matter by sending additional notices, such as the CP501 and CP503, which serve as reminders and warnings of potential collection actions.

If you continue to ignore these notices, the IRS may issue a CP504, which is a final notice of intent to levy and a notice of the taxpayer's right to a hearing. This notice indicates that the IRS is preparing to take more aggressive collection actions, such as garnishing wages, levying bank accounts, or seizing property.

In some cases, the IRS may assign the debt to a private collection agency. This typically happens when the IRS has exhausted its internal collection efforts. The private agency will then attempt to collect the debt on behalf of the IRS, although this approach has been criticized for its inefficiency and the undue stress it places on low-income taxpayers.

Throughout this process, it is crucial for you the taxpayer to respond promptly to IRS notices and seek professional assistance if needed to avoid severe financial repercussions.

Cash Tracks Financial of Colorado Springs

Marcelino Dodge, EA

525 N Cascade Ave., Suite 200

Colorado Springs, CO 80903

(719) 359-8789

www.cashtracksfinancial.com

success@cashtracksfinancial.com

Colorado Springs: What if the IRS Filed a Tax Return for Me?

 

Failed to file your tax return for a few years? Are you aware that IRS Code Section 6020 allows the IRS to file a tax return for you?  

What is IRS Code Section 6020?

IRS Code Section 6020 grants the IRS the authority to create a substitute tax return (SFR) for individuals or businesses that neglect to file their tax returns. This provision ensures that the IRS can assess and collect taxes even when the taxpayer does not comply with filing requirements. The most common SFR under this section is 6020(b).

6020(b) Substitute Returns

Under 6020(b), the IRS prepares a return based on available information, such as W-2s, 1099s, and other third-party data. This return is often less favorable to the taxpayer, as it does not include deductions or credits the taxpayer might be eligible for. The IRS will then send a notice of deficiency, giving the taxpayer an opportunity to contest the return or provide additional information.

Implications for Taxpayers

Failing to file a tax return can lead to significant consequences, including penalties, interest, and potential legal action. An SFR under 6020(b) can result in a higher tax bill due to the lack of deductions and credits. 

What can the Taxpayer do?

The taxpayer should consult a tax professional for best information on how to proceed forward.  Marcelino Dodge, EA, CTRC will review your circumstances and make a recommendation to either get the correct tax return filed or to let the SFR stay in place.  

Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA, CTRC
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com

Colorado Springs: How Can I Resolve an IRS Lien?

 

Dealing with an IRS lien can be daunting, but taking prompt and informed action is crucial. An IRS lien is a legal claim against your property due to unpaid tax debt, affecting your credit and financial flexibility. Here’s how to handle it:

1. Understand the Lien: First, comprehend the lien notice. It indicates the IRS’s claim on your assets until the debt is settled.

2. Verify the Debt: Ensure the lien is accurate. A tax professional can help you determine if the owed amounts are correct. 

3. Communicate with the IRS: Ignoring the lien will worsen the situation. An Enroll Agent, like Marcelino Dodge, EA, CTRC can communicate with the IRS on your behalf.

4. Payment Options: If  the debt is accurate, then if possible pay in full. This is the quickest way to remove the lien. If full payment isn’t feasible, Marcelino Dodge, EA, CTRC, will help you determine the best option for your facts and circumstances, such as an installment agreement or an Offer in Compromise, which allows you to settle for less than the owed amount.

5. Seek Professional Help: Consult a tax resolution professional, Marcelino Dodge, EA, CTRC, he can guide you through the process, negotiate on your behalf, and explore options like lien subordination or withdrawal.

6. Stay Compliant: Ensure you file and pay all future taxes on time to avoid further complications.

Addressing an IRS lien promptly and strategically can mitigate its impact and help you regain financial stability.

Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA, CTRC
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com

Colorado Springs: Why is Reasonable Compensation Important for S-Corporation Officers?

 

Reasonable compensation is a critical concept for S-Corporation owners, ensuring compliance with IRS regulations and maintaining the integrity of the tax system. As S-Corporations are pass-through entities, they do not pay corporate income tax. Instead, income, gains, losses, and deductions are passed through to shareholders' personal tax returns. However, working shareholders must receive reasonable compensation for their services, which is subject to payroll taxes like FICA.

Failing to take reasonable compensation can lead to significant issues. First, it can trigger IRS audits and penalties. The IRS examines S-Corporations to ensure that wages are not being disguised as distributions to avoid payroll taxes. If the IRS determines that compensation is unreasonably low, it can and does reclassify distributions as wages thus requiring the filing of payroll tax forms and payment of  failure to deposit penalties and failure file penalties.

Second, adhering to reasonable compensation standards supports the social security and Medicare programs, as payroll taxes fund these programs.  As an S-Corporation owner, you are also contributing to your own social security, ensuring that you will have a higher than average benefit when it is time for your start drawing your own social security,

How do you know if your S-Corporation salary is reasonable according to IRS standards?  Marcelino Dodge, EA, CTRC works with small business owners to help them determine what a reasonable salary is and then implement the salary according IRS guidelines.

Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA, CTRC
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com

Colorado Springs: Should I File an Offer in Compromise to Resolve my Tax Debt?

Facing a significant tax debt can be overwhelming, but an Internal Revenue Service (IRS) Offer in Compromise (OIC) provides a potential lifeline. This program allows taxpayers to settle their tax liabilities for less than the full amount owed, offering a fresh start for those in financial distress. Here are key reasons to consider filing an OIC:

1. Financial Relief: If you're struggling to pay your tax debt due to financial hardship, an OIC can significantly reduce the amount you owe, making it more manageable.

2. Avoid Bankruptcy: Filing for bankruptcy has long-term consequences. An OIC can be a preferable alternative, allowing you to resolve your tax issues without the severe impact on your credit score.

3. Simplified Process: Although the process can be complex, Cash Tracks Financial walks you through the process to provide tax relief and peace of mind.

4. Peace of Mind: Settling your tax debt can alleviate the constant stress and anxiety associated with owing the IRS, allowing you to focus on rebuilding your financial stability.

5. Future Compliance: Successfully completing an OIC can help you get back on track with your tax obligations, ensuring you remain compliant in the future.

Marcelino Dodge, EA, CTRC will analyze your circumstance to determine if you meet the eligibility criteria, filing an OIC could be a strategic move to regain control of your financial situation and secure a more stable future.

Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA, CTRC
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com

Colorado Springs: What Is Reasonable Compensation for S-Corporation Owners?

 

Do you have an S-Corporation? Are you on salary or are you just taking distributions?  Did you know that S-Corporation shareholders are on the list of priorities for the Internal Revenue Service (IRS)?

Why would S-Corporation shareholders be on the IRS radar?  The IRS is finding that many S-Corporation shareholders who are active in the business are not taking a salary.  Instead, many of these shareholders are just taking distributions. Why would a shareholder take only distributions?  Perhaps they were told that by taking only distributions they will save on taxes.  This sadly misguided and misleading advice.  I will discuss in another blog why the tax saving advice in this case is bad advice.  The IRS requires that "distributions and other payments by an S-Corporation to a corporate office must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation." -- From the Instructions for the 1120S.

For now think about this: Do you provide substantial services to the business? What would it cost to replace you?  These are good starting points for determining what your reasonable compensation should be.

Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA, CTRC
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com

Colorado Springs: Do I Have to Pay My Deceased Spouse's Overdue Self-employment Tax?

 

For any industry where you or your spouse are self-employed, the self-employment tax is a common issue.  This can especially be true when your spouse is a truck driver.  Often times a low cost tax preparer is used to save money.  Sadly, though this often results in a poorly prepared tax return missing countless deductions.  Sometimes I have encountered cases where a married filing joint tax return was electronically filed without one spouse's consent.  There was a significant amount of self-employment tax and income tax due.  The non-consenting spouse may not have filed jointly if she had known the amount due on the tax return.  Then the spouse who filed the tax return suddenly and unexpectedly dies.  Leaving the surviving spouse with a large tax bill.  Is the surviving spouse required to pay the unpaid taxes?

Under Internal Revenue Code Section 6015 (b), the surviving spouse may qualify for Innocent Spouse Relief after consideration of the the facts and circumstances,  Marcelino Dodge, EA, CTRC has helped taxpayers obtain this relief after a thorough and careful review of their complete situation.

Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA, CTRC
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com

Colorado Springs: Am I Responsible for My Former Spouse's Tax Debts?

 

Did your former spouse prepare joint tax returns, have you sign the returns, and then file the returns? Then months or years later you come to learn that your spouse failed to report all his income.  You learn that when an IRS letter arrives notifying you that the tax return has been adjusted.  The adjustment shows an increase in taxable income from the 1099's your spouse failed to included as income on the original return.  But, that is just the beginning.  In addition to the increased income, there is an increase in not only income tax, but also there is now a large amount of self-employment tax due.  To top it off, you are required to repay some refundable tax credits that were refunded to you on the return.

The amount due can be tens of thousands of dollars of tax.

Are you responsible for these taxes?  Can the IRS require you to pay the amounts due because of the jointly filed tax returns?  Technically, the answer is yes to both questions.

But, with consideration of the the facts and circumstances, you may qualify for relief under Internal Revenue Code Section 6015(b).  This code section has requirements that must be met for you to qualify for Innocent Spouse Relief.

Marcelino Dodge, CTRC, EA of Cash Tracks Financial has helped taxpayers obtain this type of relief.  He can analyze you circumstances and suggest the best course of action to solve your tax problem.

Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com

Colorado Springs: What Does it Mean to be in Tax Compliance?

Sometimes people call the office stating that they are several years maybe even 20 or more years behind on filing taxes.  They are a panic because they think they have to file all 20 years to be compliant.  Or, they received a tax bill notice for a year that IRS has filed a substitute return.  We listen carefully to their story to figure out how we can help.

After understanding the client's situation we pull the client IRS transcripts to get a clear picture of their situation.  Most of the time getting the client in tax compliance is the place we start.  But, what is tax compliance?  According to the Internal Revenue Manual 1.2.14.1.18, federal tax compliance is the filing the last 6 years of tax returns. Also, included in tax compliance is making estimated tax payments, having proper withholding, and making payroll tax deposits?

Marcelino Dodge of Cash Tracks Financial works to not only get you tax compliant, but also will analyze your situation to determine the best strategy to use to lay your tax issues rest for good.

Cash Tracks Financial of Colorado Springs
Marcelino Dodge, EA
525 N Cascade Ave., Suite 200
Colorado Springs, CO 80903
(719) 359-8789
www.cashtracksfinancial.com
success@cashtracksfinancial.com