Top #5 things to know about Tax Liability amongst spouses

Top #5 things to know about Tax Liability amongst spouses

Top #5 things to know about Tax Liability amongst spouses

Marriage is the time when you vow to stand by the side of your spouse through thick and thin throughout the rest of your life. You might be having the idea that you know everything about your partner; however, there might be a secret that you might not be aware of i.e. the tax debt. You would want to know if the IRS can come after you or charge you for your spouse’s taxes. Yes, you can be liable for the tax debts of your spouse but only in certain circumstances.tax liability amongst spouses.

1.Can I be held liable for my spouse’s tax debts?

The main reason as to why the IRS would come after you for your spouse’s tax debts depends on factors such as when you filed your tax returns and your tax return filing status. In case, your spouse had claimed false deductions or failed to pay off the debts to IRS you might be held responsible for this.

Filing status and liability determines whether you would be liable for your spouse’s tax debts or not.There are two options available for married couples i.e. filing jointly or filing tax returns separately. These options will be available to you if you are filing your tax returns being married to a foreign citizen or a resident.

a.Married filing jointly

Your tax filing status is important as it will determine your taxable income. When filing your tax returns jointly, you can claim tax allowances but both of your tax obligations become the same. By this, you would be responsible for your spouse’s tax debts and vice versa. Your tax refunds can be used by the IRS to offset the tax dues of your spouse. However, if you do not want your refunds to be used for paying your partner’s tax debts you can apply for Innocent spouse relief or injured spouse relief.

b.Married filing separately

According to the latest IRS data, out of the 153 million tax returns which were filed during the year 2017 only 3.2 million couples were married and filing their returns separately. The main cause for filing tax returns separately is to avoid being liable for their partner’s tax bill or any other tax penalties.

2.When your spouse’s tax debts were incurred?

In case your spouse owes money to the IRS, the timing of the debt incurred is important.

1.Before Marriage

If the debt of your spouse had been incurred before you got married, then you do not have any tax liability and only your spouse would be liable. In case, your refund had been intercepted by the IRS to pay off your spouse’s debts then you must apply for Injured Spouse Status.

b.During Marriage

If the tax debts of your spouse were incurred during the time of your marriage and you have filed jointly then you might be potentially liable. However, tax debts have been incurred by your spouse without your knowledge then you are not responsible.

c.After Marriage

If the tax debts have been incurred by your spouse after marriage then you might be held liable if you have been legally separated from your spouse but not divorced. In such a case, you can apply for Separation of liability relief for partial liability.

3.Can your house or assets be seized by the IRS?

Yes, the IRS has the power to seize your house or assets even though the money owed to the IRS is by your spouse. This is feasible for that year during which you have filed your tax returns jointly. However, it is very unlikely for the IRS to seize your physical property and it would rather issue a tax lien or levy.

4.Can you dispute the liability of your spouse’s back taxes?

 

The IRS would offer two options to provide relief to those spouses who have been taxed on behalf of their spouses.

a.Innocent Spouse Relief

Innocent spouse relief can be offered to you if your spouse failed to report his income or claimed improper credits/deductions. You are considered to be an innocent spouse if you are married to someone who had lied to the Federal Government, hidden income, or claimed too many deductions to lower his tax debts. You can fill Form 8857 and request a separate tax liability which would help you in providing relief from tax penalties or liabilities of your spouse.

b.Injured Spouse Relief

If your share of the tax refund on the joint tax return was used by the IRS to offset the debts of your spouse, you can consider yourself as an Injured Spouse. The IRS would intimate you if any part of your tax refund is being used to offset your spouse’s back taxes. You can fill Form 8379, mention “Injured Spouse” on the top of Form 1040, and obtain your refund from the IRS.

5.Open communication on finances

So, your tax return filing status and the status of your marriage will help in determining if you would be held liable for your spouse’s back taxes or not. It is necessary to maintain clear communication with your partner and understand the financial positions of each other well. Taxes are a part of your lives and you must discuss them openly.

Conclusion

Hence, this information on the tax liability of spouses would be helpful in case you are wondering about the difficulties you might face due to the tax secrets of your spouse.

Top #5 things to do if you have missed the tax deadline

Top #5 things to do if you have missed the tax deadline

Top #5 things to do if you have missed the tax deadline

With response to the outbreak of the pandemic COVID-19, the US Treasury Department and the IRS had provided special tax filing and payment relief to the Americans. The deadline for tax returns had been extended by the IRS from 15th April 2020 to 15thJuly 2020. The IRS had continuously urged the Americans to file their tax returns before the completion of the tax deadline or request for an extension in case of ineligibility to file or pay by the declared deadline.

However, the federal tax deadline has come and gone now. If you have missed your federal tax deadline and have not also filed for an extension then, you should have an idea about the course of action you can follow now.

Go ahead and file as soon as you can

  1. If you owe money to be paid to the IRS, then you must file your tax returns soon to avoid paying any penalties to the IRS.
  2. Even though the IRS would charge penalties on you for the late filing of your returns but that would be somewhat less than the penalties charged for not filing the tax returns at all.
  3. The IRS would have received Form 1099-Misc and Form W-2 which would reflect your income earned for the year. You must file your returns immediately so that the IRS does not show that you need to pay more taxes.
  4. Moreover, you might be having a tax refund and it may not come if you have a tax penalty to pay. In case you have a tax refund and do not file your taxes then you would have to wait for three years of the tax return due date.

Make arrangements for the payment

If you are not filing your tax returns on time because you are not sure about how you will arrange for your payment amount then, you can follow the below-mentioned steps.

  1. You must file your tax returns soon, pay whatever amount you can arrange, and then request a payment plan from the IRS.
  2. There are several options available with the IRS such as a request for a short term payment plan, offer in compromise, long term installment plan, or temporarily delay collections in some cases.
  3. By the short term payment plan, you can pay the amount you owe to the IRS within 120 days. Similarly, by long term installment agreements, you can pay your amount over 6 years.
  4. In case your total taxes, penalties, and interest are up to $50,000, you can request for an installment agreement online.

Information about the penalties

If you have not filed your tax returns or not paid your taxes on time, you should be aware of the penalties which you would have to pay.

  • Failure-to-file penalty – This penalty would be 5% of the unpaid taxes for each month your tax return filing is late until 5 months. However, if you are filing your tax returns late by more than 60 days you; you would have to pay whichever is less i.e. 100% of the federal taxes you owe or a specific dollar amount which can be adjusted annually for inflation. This “specific dollar amount “is $435 for those returns which are due after 1st January 2020.
  • Failure-to-pay penaltyThe IRS would charge you 0.5% of your unpaid taxes for each month of unpaid due up to 25%. Interest would be accrued on the unpaid taxes and would be equal to the Federal Short term rate plus 3%.

In most cases, the failure-to-file penalty is much more than the failure-to-pay penalty. So, it is advisable that if you are not able to pay the taxes on time you should at least file your tax returns on time.

Use e-filing

If you have not filed your tax returns yet, you can still do it online by using the e-filing method. If you are using the conventional methods of tax filing, it will take a longer time to be received by the IRS and to be processed by the IRS.  If the filing has been done by electronic means, the IRS would process the return requests within 21 days from the date of receipt of the return.

Do not ignore

You should be completely aware of your specific tax situation. The sooner your tax issues are addressed the better. If you continually keep on ignoring your taxes, you would have to face some serious penalties like

  1. IRS can file a notice of a federal tax lien.
  2. Your property might be seized.
  3. IRS could forfeit your refund.
  4. In serious cases, your passport might be revoked or charges could be filed against you for tax evasion.

Conclusion

It is advisable not to avoid your tax-related problem, do good research, seek help from professionals, and work toward finding a solution to your problem.

References

Step-by-step guideline on what to do if you cannot afford to pay your taxes

Step-by-step guideline on what to do if you cannot afford to pay your taxes

Step-by-step guideline on what to do if you cannot afford to pay your taxes

 

 The IRS had extended the tax return filing and payment deadline until 15th July 2020 for the Americans to alleviate the financial crisis faced by millions of Americans due to the pandemic COVID-19. However, the pandemic has led to the unemployment of millions and millions of Americans. So, even with the extension in the return filing and tax payment deadlines, it is quite difficult for some Americans to pay their taxes on time.

The IRS has a simple reminder for the taxpayers who cannot pay their entire amount of federal taxes which they owe. They should file their tax returns on time and pay as much as possible. By this, the interest and penalties of taxpayers would reduce and there would not be much accumulation of interest to pay back.

If a taxpayer plans to pay his taxes as much as he can afford, then the IRS has some convenient methods to do this i.e. by IRS Direct Pay Method, Electronic Federal Tax Payment System (EFTPS), Electronic Funds Withdrawal, Debit or Credit card, or by Check/Money Order, etc.

However, for those taxpayers who feel payment of taxes are unaffordable at the moment; they can follow a detailed plan.

Step1 – File by the new 15th July deadline even if it feels difficult to afford the payment on time

As said earlier, due to the pandemic COVID-19 the deadline to pay the Federal taxes has been pushed to 15th July 2020. However, with this extra time, taxpayers should not wait much more to file their taxes. Taxpayers must consult tax professionals for filling the forms. By this, the credits and deductions to lower the bill can be found out easily.

Many taxpayers might consider the option of the deadline extension. However, the extension would provide more time for filing the tax returns but not for 

paying the taxes. Even if there is an extension, the tax payment must be done on time. So, an extension should only be filed by the taxpayers if due to some reason the taxpayer is not able to file the tax returns on time.

 Step2 – Pay as much as possible by the tax deadline

This is also recommended by the IRS that the taxpayers should wait till the deadline, try to arrange for the tax amount, and pay off as much as possible. Some taxpayers even prefer discarding some of their unwanted materials in exchange for cash which can be utilized in payment of their taxes which are due.

Taxpayers can contact the IRS on the toll-free number to discuss alternate payment options. IRS might help the defaulter taxpayers with other payment options like a short-term extension to pay the taxes, an

agreement for installment, an offer in compromise, or by temporary delay in the collection by reporting that the taxpayer’s account is currently not collectible until the taxpayers can afford to make the payment.

Step3 – Keep paying the taxes you owe even after filing

Even after Tax Day, taxpayers would have a period of around 1 month or 2 months before the IRS would contact them about the rest of the tax payment. During this available time of 1month or 2 months, taxpayers should try to pay out as much as possible to reduce the balance left out.

In case the taxpayers are not able to make their complete payment by this time, the IRS would suggest options for making the rest of the payments in monthly installments.

 

Step4 – Rectify the problem

You should approach a tax professional and try to work with him or his team to ensure that you are not stuck with the problem of unaffordability related to tax payments. This can be feasible either by setting aside profits from a side business or by the adjustment of withholdings from your paychecks.

Your issues can be best identified and rectified by the tax professionals so that these issues are avoided in the future.

Conclusion

Hence, you can follow these steps and try to pay off as much tax as you can. Avoiding the aggregation of penalties is important to avoid any further financial and economic hardships.

Income Tax Refund V/S Owning tax

Income Tax Refund V/S Owning tax

Income Tax Refund V/S Owning tax

In these challenging times of financial distress caused due to the pandemic COVID-19, receipt of your tax refund is like a gift. If you are receiving a substantial amount as your tax return you can use it for various useful purposes during these difficult times. However, if you have still not received your tax refund and are wondering what could be the reason; it’s time to analyze the possibility i.e. the IRS seized your tax refund.

You might also wonder that “would you obtain your tax refund if you owe tax to the IRS?” So, let us understand the various aspects related to the scenario in which you apprehend the receipt of your tax

When will the IRS seize your tax refund?

If you owe taxes to the IRS, then you would not be able to get back your tax refund. The IRS has the power to garnish your refund to offset the tax debts you owe. Some of the major tax debts which can lead to the IRS’s seizure of your tax refunds are listed below.

a.Back Taxes

You are said to have back taxes when you have any taxes unpaid or partially paid at federal, state, or local level. If you have tax debts at any of these levels, then your tax refunds might be garnished by the IRS. In such cases, the IRS would send you warning notice about a part of the entire of your tax refund being used to offset your back taxes. Even if you have selected for options like the IRS installment agreement plan, the IRS can still take your tax refund back and pay your tax debts by using them.

If you are willing to relieve yourself from the tax debts, you can do so by filing for bankruptcy. If you are filing for bankruptcy, the IRS would provide you with three payment priorities.

 

  • Priority and non-dischargeable unsecured tax debtThese are those debts that cannot be discharged and must be cleared first before any other debt such as trust fund taxes, taxes that are assessable but have not been assessed, etc.
  • Non-priority and non-dischargeable unsecured tax debtThese taxes are not placed on the top priority and they cannot be discharged. These taxes include taxes on fraudulent returns, taxes filed late within two years of the date of filing, etc.
  • Non-priority and dischargeable unsecured tax debtThese taxes are unsecured, are not prioritized, and can be forgiven too.

b.Child and Spousal Support

In case you are a parent who is providing child support, the Child Support Agency of your state will inform the Treasury Department about your child support debt. The Treasury Department will send you a pre-offset notice which informs you about how much debt you owe the working of the offset program and the ways by which you can pay off your child support debts. This same procedure is applicable for spousal support as well for tax debt offset by the IRS.

c.Other additional debts

In addition to the Child and spousal support, back taxes there are some other debts also which can be garnished by the IRs through the seizure of your tax refunds. These can be your Student loan payments or your State Unemployment compensation.

If you have not paid your federally-insured student loans, the IRS can seize your tax refund for the payment of your outstanding debts related to a Student loan. Moreover, the US Education Department has the authority to let your employer garnish up to 15% of your income until all your loan debts are cleared.

The IRS can also seize your tax refunds in case of any unemployment compensation collected by you for which you were not eligible. The Unemployment program of your State can ask the IRS or the Treasury Department to offset your tax refunds.

How can you obtain your complete tax refund?

If you wish to obtain your entire tax refund without your refund being garnished for tax debt settlement, then you must pay your taxes on time and in full amount. In case, you have other debts like student loans or spousal support debt, etc. you can try to pay your debts as much as you can. This will help you in obtaining some more tax refunds.

 If you are facing tax issues, you must sincerely work towards the resolution of these issues by opting for professional assistance. In the year 2018, over 13 million Americans owed more than any amount of $128 billion to the IRS for taxes and penalties. You should try to find out about the various tax issue resolution services such as the Installment Agreement, Stair Step Agreement, Partial Pay Agreement, etc. for resolving your tax problems.

Conclusion

Hence, a tax refund is important for everyone, especially during these financially difficult times. You must file your tax returns on time and pay your taxes on time. You must accurately file your taxes to make the maximum utilization of your return obtained.

Do you owe taxes to the IRS?

Do you owe taxes to the IRS?

Do you owe taxes to the IRS?

There can be scenarios when you realize that you owe taxes to the IRS after you have finished your tax returns or you owe more than what you can afford at the moment. However, you should not panic in such circumstances and must try to find out options by which you can pay off your taxes.

In the first place, you must find out how much tax you owe to the IRS.

How much do I owe to the IRS?

You can use the tax refund calculators to find out about the tax you owe to the IRS. By the time you complete your tax refund, you would know exactly how much you owe to the IRS. You must check out all the deductions and credits carefully which you think you are qualified for.  Moreover, you can compare your tax returns of the previous year with that of this year and find out about the changes. However, if you are obtaining a mail from IRS about back taxes then you can further investigate it by checking with the IRS.

File an extension

You can file an extension to complete your tax return by submission of Form 4868 to the IRS. You can check out for any deductions you might have missed or any miscalculations which you might have made while filing your tax returns. It is advisable to take assistance from an experienced tax professional to find out any deduction or credit which you might have missed. You should try and submit your Form 4868 by the deadline based on whatever you think you owe. You must try to pay as much as you can otherwise you might accrue penalties and interest.

Options for payment

Your payment to the IRS can be done by the below-mentioned methods.

The Electronic Federal Tax Payment System – This system is being operated by the Treasury Department to process the federal tax payments. You must set up your account by using your bank account information and then make your payments. Payments can be made related to different tax obligations such as estimated tax, extension payments, tax balances for previous years, etc.

IRS Direct Pay – You can pay your tax bills directly from either a savings account or a checking account by using Direct Pay. By Direct Pay, taxpayers would be able to schedule tax payments up to 30 days in advance. Payment can be canceled or changed before two business days of the scheduled date.

Credit cards or Debit cards – You can make your tax payments by using credit or debit cards, phone, or by any mobile devices. These payments would be processed by a processor and convenience fees would be charged by the processor. You can download the official mobile app of the IRS i.e. IRS2Go and make your payments conveniently.

US Postal Services – This is the conventional means of making tax payments. You can send your money to the IRS in an old-fashioned manner by mailing the payment check.

Minimizing penalties and interest

Huge tax bills can be troublesome and if you have penalties/interest on top of the original amount, then it would add to your hardships. So, you can minimize these penalties and interest can be minimized in the below-mentioned ways:-

Exceptions to the underpayment of tax penalties – In case you have underpaid your tax this year but you owed substantially less tax the previous year, then you would not be paying penalty for the underpayment.

Abatement of penalties – You can write a letter to the IRS and explain your situation. This can lead the IRS to reduce your penalties or interest.

Pay quickly – If you owe to pay tax to the IRS, then you should not wait until the deadline to file your tax returns. You can send an estimated tax payment or file your tax returns early and pay as much as you can.

What can I do if I can’t pay my taxes?

In case, you are not able to pay your federal tax immediately, there are certain options provided by the IRS which you can use to make your tax payments systematically.

Installment Agreement – You can file Form 9465 which is known as the “Installment Agreement Request” to set up installment payments with the IRS. The installment agreement form can be completed online by using the Online Payment Agreement Tool.

  • If you owe $50,000 or less in the form of combined tax, penalties, and interest and have filed all required returns, you can apply for the Monthly installment agreement online.
  • Businesses can also apply for this online if they owe $25,000 or less in combined tax, penalties, and interest for the current year or the liabilities of the last year and have filed all required returns.

Offer in Compromise – This method should be used as an extreme last resort. IRS would negotiate back taxes by Offer in Compromise and your tax bills can be settled in less than what you owe.

Conclusion

Hence, these are some basic tips and steps which you must follow if you owe taxes to the IRS for easier and faster resolution of your tax-related issues.

References

All you need to know about a delay in IRS Refunds in 2020

All you need to know about a delay in IRS Refunds in 2020

All you need to know about a delay in IRS Refunds in 2020

The US Treasury Department and the IRS had delayed the deadline for a federal tax return by three months to reduce the economic stress on the Americans caused due to the pandemic COVID-19. Due to the widespread impact of the novel coronavirus, the Federal Government has been urging the Americans to maintain social distancing. Due to the social distancing norms, the IRS had to close its offices around the country and operate with limited staff. Moreover, for around 2-3 months the IRS has been only performing the “Mission-Critical” functions which mainly included delivering Stimulus Checks to the Americans.

Many IRS officers have returned to offices last month to perform those tasks which cannot be performed from home. These tasks mainly include processing the federal income tax returns of the taxpayers and there is a huge backlog of work to be completed by the IRS officials.

How long does it take for the IRS to process tax refunds?

  • Generally, the IRS would issue a tax refund to the taxpayers within 21 days of accepting the tax return request.
  • If your return request has been filed electronically it would take the IRS maximum of 3 days to accept the request whereas if it is filed by the paper medium it would take additional 3 weeks to accept the request.
  • Due to the pandemic COVID-19, return requests filed by paper have not been processed and there has been a huge backlog. If you have mailed your tax returns by 15th July 2020 then you must be prepared for the huge delay. 

Major reasons for tax refund delay in 2020

Let us have a look at some of the major reasons for the delay in a tax refund for the year 2020.

Filing early or lateIf you have filed your returns earlier, you would wait eagerly to receive your returns. However, the early filers might even have to wait for long. The IRS is still making certain changes into its processes and has a lot of backlog work to finish up due to the pandemic. The changes in processes can include updated security measures or any other process tweaks.

Claiming certain creditsYour tax returns might be delayed if you filed them early but have claimed certain credits like Earned Income Tax Credit or Additional Child Tax Credit. You can keep checking the status of your return on the “Where’s my refund tool” of the IRS.

Filing done by paper returnsThis is one of the most common causes for your tax refunds being delayed. Tax returns filed by paper means would take a longer time for being processed and also for the issue of the refund too. Sending of checks through mail also opens up the possibilities of your check being lost or being sent to a wrong address. So, this would delay the entire refund process.

Outstanding debtsThe IRS can also garnish your refunds if you had defaulted on a federal student loan, if you owe money for back taxes, if you owe money for child support or if you filed a joint return and your spouse has outstanding debts. By garnishment, the IRS can withhold money from you to put it towards some other task.

Security measuresThe IRS maintains strict security measures to combat identity theft. There are some security measures due to which the IRS can increase its processing time. There might be a scenario where the IRS suspects that there has been a tax return filed for you by stealing your identity. This can delay your return and you might obtain it after the investigation has been completed by the IRS. Sometimes, the IRS may also feel that the bank account mentioned in the return is suspicious and does not belong to you; in this case, the IRS would send it to you as a paper check.

Incorrect bank informationYour account number and bank details should be correct while filing your tax returns. If you have entered the wrong information and the refund has not been sent by the IRS, you can call on the toll-free number and request to stop the processing. If the refund has already been sent by the IRS, then you can contact the financial institution to send the payment back to the IRS and the IRS would issue you the refund as a paper check. However, if the financial institution does not agree to send the refund back to the IRS you would have to file Form 3911.

Mistakes on your returnIn case, there are any mistakes in your return such as any mathematical errors or incorrect personal information then the IRS would take a long time in processing them. This would slow down the process of a potential refund. The IRS would contact you for any mistakes in your return and in some cases, it might amend your minor errors as well.

Conclusion

So, if you have not received your tax refunds yet you can call the IRS or check the status of your refund on “Where’s my refund?” in the www.irs.gov/refunds webpage.

References

  1. https://www.cbsnews.com/news/tax-refund-delay-irs-backlog/
  2. https://smartasset.com/taxes/tax-refund-delay
  3. https://www.cnbc.com/2020/06/22/heres-why-you-havent-received-your-tax-refund.html
  4. https://www.washingtonpost.com/business/2020/07/21/tax-refund-delay-irs/
  5. https://www.wsj.com/articles/your-tax-refund-may-be-late-this-year-heres-why-11594810800