Carrere Law Group, PC

FBAR: Purpose and penalties

2023-09-21T14:05:45Z

Filing taxes isn't just about reporting domestic income. For many people, having international ties means there's an added layer of reporting involved that might not be immediately apparent.

One such requirement is the Foreign Bank Account Report, commonly known as FBAR. This report ensures transparency and compliance for those with overseas financial interests.

FBAR explained in simple terms

The Foreign Bank and Financial Accounts Report is a filing requirement for U.S. persons, including citizens, residents and entities, who have financial interests or authority over foreign financial accounts exceeding $10,000 at any point during the calendar year.

Penalties can be steep for non-compliance

The consequences can be significant for those who don't file or improperly file the FBAR. Penalties are categorized based on the nature of the violation. For example:

If you didn’t know about the FBAR requirement and failed to file, it's termed as a non-willful violation. Even so, the penalty can be up to $10,000 per violation, which quickly adds up if multiple years of non-compliance exist.

If you knowingly avoided the FBAR filing, it's a willful violation. Penalties for this can be the greater of $100,000 or 50% of the balance in the unreported foreign account per violation. Willful violators can also face criminal prosecution.

Understanding FBAR and its implications is crucial for those with foreign financial ties. While this offers a basic overview, always ensure you're fully informed to avoid unexpected complications. Working with someone familiar with this reporting requirement is beneficial for anyone with international ties. Be sure to find out more if you are unsure whether it applies to you.

Is an IRS installment agreement right for you?

2023-09-08T23:00:07Z

Despite your best-laid plans, something went amiss. Now, you owe the Internal Revenue Service (IRS) a significant amount of money. What do you do in this situation? Do you make a partial payment and see what happens? Do you ask for an offer in compromise? Do you ask to be put in “currently not collectible status? Or is an installment agreement the way to go?

Are you eligible for an installment agreement?

Before you can decide if this is the right way to go, you need to determine if you’re eligible for an installment plan. Generally speaking, you need to have all your tax returns filed. If you are fully compliant, then there are some options that may be available. The option that is right for you will depend on your ability to pay and the amount owed to the IRS. The advantage of an IRS installment agreement is that it typically allows payment of the tax debt by manageable monthly payment. As long as you make your payments on time, the IRS will pause its levy actions, and that can ultimately protect your personal property and income – including your home, bank accounts and current wages. The disadvantage is that interest and penalties continue to accrue, and in some cases, the IRS may demand a higher installment than you want to pay. IRS installment agreements can be useful for a lot of people, but they’re not a one-size-fits-all financial panacea to your tax problems. Every situation is unique, and installment agreements are not the right route for everybody. Experienced legal guidance can help you figure out your options, settle your tax debt and end the anxiety associated with owing the IRS money.

Some common red flags that can trigger an IRS audit

2023-08-24T02:39:49Z

Two of the most frightening words most Americans can hear are “IRS audit.” While only a small percentage of returns for fiscal year 2022 were audited, if you’re among the unlucky few who have to face an audit, that’s little comfort. You may have heard that only very wealthy people are audited. Those with a high annual income are typically more likely to face an audit than middle-class taxpayers. However, other factors can bring your return to the attention of the IRS. Let’s take a look at a few.

Missing income

In addition to income reported on a W-2 by your employer, you typically need to report anything listed on any 1099 form. This includes income you receive as an independent contractor and interest income from financial institutions and investment earnings. Don’t just wait for your 1099s to come in by mail or email. Keep track of what forms you should receive and from whom so you can follow up before doing your taxes if you’re missing one.

A large amount of credits and/or deductions for your income

Anything that looks “out of whack” can be a red flag for the IRS. A person who reports $50,000 in income, for example, and $10,000 in charitable donations is going to stand out. It’s possible that they’re living primarily on nontaxable income or sitting on a lot of savings. However, things like this can get your return flagged for further scrutiny – at least the first time it happens.

Round numbers

You can round up to the nearest dollar when listing income, deductions and other dollar amounts on your return but not to the nearest $100 or $1,000. If all of a taxpayer’s figures are round numbers, it seems obvious that they’re just guessing. Be prepared to produce documentation.

Documentation is key

As you prepare your taxes (with or without the help of a tax preparer), make sure you have documentation to back up everything you report. Much of this is now accessible via computer. What isn’t, you can always scan and keep them together in labeled (and properly secured) folders on your computer. Retain this for at least the number of years recommended by the IRS based on your unique situation. If you’re facing an audit, it’s always wise to have experienced legal guidance. This can help you resolve it as quickly as possible and minimize the financial and other consequences.

Understanding your tax relief options

2023-08-08T02:50:24Z

Knowing the various tax laws can be daunting, especially when facing financial hardship. Many people don’t know that there are tax relief options available. Whether you are dealing with unpaid back taxes, unfiled tax returns or other tax-related issues, help is available.

Installment plans

The IRS offers different types of payment plans for taxpayers who are unable to pay their taxes in full. One of those is an installment agreement that allows you to pay the taxes you owe over an extended timeframe. In some cases, only a portion of the tax is repaid through installments. This is called a partial pay installment agreement. There is a short-term payment plan that gives you an additional 180 days to pay in full. If you have an assessed tax liability less than $50,000, you can make monthly payments for up to 72 months as long as the payment is made via direct debit or payroll deduction, and the debt is paid in full before the statute of limitations expires.

Offer in Compromise

Another option, if you can’t pay your tax debt in full or are facing financial hardship, is an Offer in Compromise (OIC). This program will allow you to settle your tax debt for less than the total amount owed.

Temporary delay

The IRS has a program that can temporarily delay collection processes if it determines you cannot pay your taxes due to financial hardship. this is called uncollectible status, or currently not collectible. The delay will continue until your financial condition improves. However, penalties and interest continue to accrue until you pay the full amount. Even if you can’t pay your taxes, you still need to file a tax return. If you don’t, the IRS will impose a failure-to-file penalty. Furthermore, you will be unable to have the opportunity to prove financial hardship, establish a payment plan or apply for an Offer in Compromise. While tax relief programs can provide much-needed help, they often require an understanding of complex tax laws and procedures. You will want to reach out to someone who can help you better understand your options and obligations.

3 alternatives to an offer in compromise

2023-07-17T14:22:51Z

When taxpayers have an outstanding tax debt to the Internal Revenue Service (IRS), an offer in compromise (OIC) is often the first thought. After all, if your request for an OIC is accepted, you can settle your debt for less than you actually owe and get a fresh start on your taxes again. However, OICs aren’t always easy to obtain, and they’re not always the right fit for your situation. Here are some potential alternatives to explore:

1. An installment agreement

If you don’t qualify for an OIC, an installment agreement might be an option (so long as you don’t have an open bankruptcy or any unfiled tax returns) to eventually repay your tax debt over time. Depending on how much you owe, the type of taxes involved and your ability to repay, you can use an installment agreement to get your taxes back on track within three to six years.

2. Partial pay installment agreements

Partial pay installment agreements (PPIAs) often benefit taxpayers who can pay something toward their tax debt but still need to lower their monthly payments because of their financial situation. Generally speaking, the IRS will look at your financials and determine if you meet their criteria for acceptance. If you do, they’ll agree to an affordable payment each month – which you’re required to pay until the remainder of the IRS’s 10-year collection period runs out. In practice, that often allows you to pay far less than you actually owe.

3. Currently not collectible status

When you ask to be placed in “currently not collectible” (CNC) status, you are essentially telling the IRS that you can’t afford to pay the tax bill and also afford your basic living expenses at the same time due to financial hardship. If your request for CNC status is approved, the IRS won’t try to collect from you, which means your assets and income are safe from levies or garnishment. Although the IRS will conduct an annual review to determine if your financial situation has changed, this can be a viable option for people who are experiencing significant economic distress. While offers in compromise are useful for a lot of taxpayers, they aren’t your only options. Experienced legal guidance can help you look at your situation and determine what’s right for your needs.

Freelancers must remember these key tax points

2023-07-05T17:55:38Z

As a freelancer, you're considered self-employed. This status means you're responsible for your own income taxes. Unlike traditional employment, freelancers are required to pay estimated taxes quarterly to the IRS and to state tax agencies. Having an understanding of tax specifics related to freelancing can help you to ensure that you do everything properly. If you have any issues with taxes, you can consult with someone knowledgeable in this field.

Understanding taxable income and deductions

"Taxable income" includes all earnings from your freelance work, minus allowable deductions. You should keep detailed records of how much you earn from each client to make it easier to report accurate numbers when you file your taxes. Deductions can encompass business expenses like office supplies, marketing costs, business-related travel and even a home office deduction. All deductions are subject to specific criteria.

The self-employment tax

Freelancers are also accountable for the self-employment tax, which covers Social Security and Medicare taxes, usually split between employers and employees in traditional jobs. As a freelancer, you handle both portions. However, you can deduct some from your income tax. All of this is spelled out clearly on the applicable tax forms.

Record-keeping

Maintaining accurate and comprehensive records of your income and expenses throughout the year is crucial. This includes keeping copies of all deductions and income you receive during the tax year. Given the complexity of self-employment taxes, freelancers should consider consulting a tax professional. With careful planning, freelancers can effectively navigate the tax landscape and ensure compliance with tax regulations. Any misstatements or omissions on tax returns may lead to issues with the IRS, so be sure you read all notices sent to you and respond accordingly.

Taxpayer Rights

2023-07-05T17:54:19Z

When the tax man calls, all American citizens must answer. Unfortunately, meeting your tax obligations is no simple matter, and even more complicated if you own a business.

Most entrepreneurs dread tax time, less because of their possible financial obligations as the complicated tax return filing process. Mistakes can and do happen, even on the part of trained Internal Revenue Service (IRS) agents.

Fortunately, the Taxpayer Bill of Rights can guide you in resolving IRS mistakes and other tax issues that could impact you or your company.

The right to pay only what you owe

Paying more than the tax burden you owe is unacceptable, even if you only do it to get the IRS off your back. When you are confident that the IRS is wrong, paying it anyway may harm the financial side of your business operations.

The right to challenge the IRS

Those who believe the IRS has made an incorrect determination regarding their business taxes have a voice. The IRS supports taxpayers by hearing objections and reviewing additional documentation to ensure its agents make correct determinations.

The right to appeal a decision

You may appeal IRS decisions, including those that could impose penalties on your business finances. Appeals are heard in a fair and independent venue to ensure an unbiased path to resolution. You may take your dispute to court if you cannot resolve it through an appeal.

Protecting your business from improper and potentially devastating tax collection practices begins with exercising your taxpayer rights. Many find it helpful to work with someone who understands complex California tax laws and knows how to navigate IRS procedures.

I haven’t filed my taxes in years. What can I do?

2023-07-05T17:51:46Z

Filing taxes is a responsibility that individuals must fulfill each year. However, life can sometimes get in the way, and you may find yourself in a situation where you haven’t filed your taxes for several years. This can be overwhelming and stressful, but promptly addressing the issue is important to avoid further complications. This comprehensive guide will help provide information about what you can do if you haven’t filed your taxes.

What are the consequences of not filing taxes?

Before diving into resolving your unfiled taxes, it’s crucial to understand the potential consequences of neglecting this responsibility. Failure to file taxes can lead to various issues, such as penalties and interest; the Internal Revenue Service (IRS) imposes penalties and interest on unpaid taxes, and unfiled tax returns accumulating over time and resulting in significant financial burdens. Even if you cannot pay taxes, it is always best to file on time to avoid compounding penalties. Furthermore, if you are entitled to a tax refund, not filing your taxes means you won’t receive the money owed. Refunds can be used to cover expenses, pay off debts or save for the future. If you wait too long, the right to receive a refund can be lost. In severe cases of non-compliance, the IRS may take legal action, like filing a substitute for return to assess tax based on information in its database.

How to address unfiled taxes

To effectively address your unfiled taxes, you’ll need to gather all the relevant information and documentation. Start by collecting all the income statements you received during the years in question, including W-2 forms from employers, 1099 forms for self-employment income, and any other relevant financial statements. Wage and income transcripts from the IRS can be helpful to help ensure proper tax reporting. Next, you should compile records of deductible expenses, such as medical bills, business expenses, charitable contributions and mortgage interest payments. You’ll also need to gather your bank statements and financial records to help provide a comprehensive overview of your financial transactions. Lastly, and most importantly, locate any previously filed tax returns, as they can serve as a valuable reference for your current situation. Failing to file taxes for multiple years can be daunting, but addressing it promptly and taking appropriate action is essential. By following the steps outlined in this guide and seeking legal guidance, you can successfully handle your unfiled taxes to avoid the potential consequences.

3 common reasons people end up with tax trouble

2023-04-27T15:08:27Z

Every year, people are supposed to pay their income taxes and property taxes. Most people do this without an issue, but there are those who miss payments or fail to make them entirely. This can lead to confrontations with the IRS. It can help to consider why people don’t pay their taxes, both to help you avoid this situation and so that you can consider your options if this does happen to you. There are always options when working with the IRS. You just need to know what steps to take.

1. They get too busy

First and foremost, people sometimes just feel like they are too busy. They miss deadlines, overlook paperwork or simply forget to send in the payments that are required. They certainly don’t want to miss the payments and they’re not trying to get out of it. They’re just very busy and paying taxes isn’t a priority.

2. They’re doing it intentionally

In some cases, people do fail to pay their taxes intentionally. They may be against taxes on principle, or they may be simply trying to commit fraud. But these cases are rather rare, at least compared to those who are making innocent mistakes or things of this nature.

3. They made a mistake

Finally, some people obviously just make an error and believe they’ve paid the proper amount. For instance, maybe they enter their income numbers incorrectly. They simply read the wrong number on the paperwork. Most people who are doing their taxes have no formal training, so little mistakes like this are very common. If you do find yourself in trouble with the IRS, remember that mistakes and oversight are more common than fraud. The IRS simply wants to get things straightened out, and you need to know what legal steps you can take to do so.

Tax avoidance vs. tax evasion: What you need to know

2023-08-10T08:09:07Z

Tax evasion and tax avoidance are terms often used interchangeably. However, they have different meanings. In a nutshell, one is illegal while the other is not. It helps to understand the difference between them to stay on the right side of the law as an individual or business entity. Ignorance is no defense, and the IRS will not want to hear that you failed to meet your tax compliance obligations for a lack of knowledge.

The differences explained

Tax avoidance refers to the lawful methods people use to reduce their tax liability. They include using deductions, credits and other tax breaks provided by law. Tax avoidance is perfectly legal and is a common practice among many who wish to reduce their taxes. For example, you may take a mortgage deduction, invest in an individual retirement account (IRA) and max out your contributions to reduce your tax bill. It is well within the law to do those things. Be aware of promotors of tax savings schemes that sound too good to be true and that it never hurts to ask for a second opinion. On the other hand, tax evasion involves failing to pay or underpaying taxes through illegal means. It is an illegal deliberate attempt to shortchange the IRS or state tax authorities. This can include claiming false deductions, engaging in tax fraud, hiding income or failing to report income altogether. Tax evasion is a criminal offense and can result in severe penalties, including fines and imprisonment.

There is a thin line between tax avoidance and evasion

The difference between tax avoidance and tax evasion can sometimes be blurry. Some tax avoidance strategies may cross the line into tax evasion if they involve intentionally misleading the government or concealing income. Therefore, it is important to make informed consultations to ensure that your tax strategies are legal and ethical. It could give your business a competitive edge and keep you out of legal trouble.