Can you relieve tax debt?

Of all the questions I get asked, that's one of the most popular (the other starts "Can I deduct...?")

In today's economy, debt settlement is a big issue, and tax debt is no different. If you've failed to file a return, that debt can be quite large. There's failure to file penalties, failure to pay penalties, late payment penalties, negligence penalties...the list goes on and on, and it's not uncommon to owe more in penalties than you do in tax. And let's not forget interest, another form of piling on. While the IRS rates are currently low (generally 4-6% in recent years), that's no guarantee that they will stay low.

So what can one do if you have tax debt, a federal tax lien or a state tax lien?

There are firms out there which offer to settle your IRS debt for 'pennies on the dollar,' but can they?

The answer: Maybe, but don't bet on it. And like debt settlement companies, you may find that you've paid them, but gotten no benefit.

What are your options, then?

First, know that if you do owe the IRS or the state, the debt won't go away. The IRS has 10 years from the date the tax is assessed (read: from when you file your return) to collect the tax. States, on the other hand, may not have a limit at all, as one California taxpayer found out to their chagrin - a $600 debt from 1982 had grown to several thousand by the time the taxpayer went to try and settle up, and California wasn't willing to negotiate (no surprise, considering their financial condition).

Second, most states and the Federal government have tax relief programs. Some, like Wisconsin, reward non-filers for coming forward voluntarily by waiving penalties and filing requirements, but you often have to do some work to find those options. Others may have payment plans or compromise plans, but with restrictions (for example, California requires direct debit).

Third, coming forward voluntarily is almost always better than waiting for the government to find you. For example, California has a stiff 100% penalty for participating in an abusive tax shelter (Summit Research & Blackbriar Investments, for example) if they contact you about it; if you contact them, you pay considerably less.

Fourth, while an offer in compromise (the 'pennies on the dollar' option) may be available, it's not a given. Anyone who promises you that they can settle your debt for pennies on the dollar is misleading you. The decision rests in the IRS or the state's hands, not yours, and certainly not a third parties'.

In short, if you have tax debt, you need competent advice.

I can help. In California and states other than Illinois, call (909)276-4829 to set up a consultation to discuss your options; in Illinois, call (708)415-6172. Don't delay - each day you wait increases the amount you owe.

More 1099 fun for California businesses

If you’re a business owner in California, you might feel a bit overwhelmed with all the tax returns and documents you file. There’s income tax returns, sales tax returns (or use tax returns, if you’re a service provider with over $100,000.00 in gross receipts), business property tax returns, e-waste returns….

And, of course, the ubiquitous 1099. Not that there’s anything wrong with that, except when you have a bunch of small-dollar forms to complete at year end, and poor records to draw from.

In California, as opposed to other states, any nonresident who receives income is subject to backup withholding on income over $1,500.00. What is backup withholding? Well, if you refuse to provide a Taxpayer Identification Number (TIN – essentially your Social Security or Employer ID number) when asked, or try to be clever and give a false/incorrect one, the IRS requires the payor to withhold tax on any payment to you. Normally, that’s it. But for a while now, nonresidents of California have also faced the possibility of losing an additional 7% in withholding to California (the IRS rate is 28%).

Effective January 1 of this year, the rules in California have changed to include residents in the mix. So now it doesn’t matter where you live, if you get California-sourced income, you WILL pay tax, one way or another, on it. There really just isn’t any way to avoid it – however, 7% is still lower than the state’s actual rate of 9%, so….you be the judge.

This just in....

From the IRS newsroom....
Those of you who enjoy the 'fake bake' may soon be paying more for the privilege:
IR-2010-73, June 11, 2010
WASHINGTON — The Internal Revenue Service today issued regulations outlining the administration of a 10-percent excise tax on indoor tanning services that goes into effect on July 1.
The regulations were published today in the Federal Register.
In general, providers of indoor tanning services will collect the tax at the time the purchaser pays for the tanning services. The provider then pays over these amounts to the government, quarterly, along with IRS Form 720, Quarterly Federal Excise Tax Return.
The tax does not apply to phototherapy services performed by a licensed medical professional on his or her premises. The regulations also provide an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.
The IRS and Treasury Department invite comments - provided, of course, that you can wade through the 121 pages of regs...