UPDATED FOR 2022
As long as your kids are doing legitimate work for your business you can hire your kids.
As long as they’re doing legitimate work for your business, you can hire your kids and pay each of them up to $12,000 per year tax-free.
It’s true. And all of this while they earn a little money AND start saving for college or that first business. And it’s all tax-free.
So you may want to hire your child(ren) to work in your business. And you want to do it for many good reasons: to teach them about entrepreneurship, develop a strong work ethic, AND for the tax-free income — up to $12,000 per child.
You can hire your kids and pay each of them up to $12,000 per year tax-free. If you hire your son to stuff envelopes and your daughter to update your website then you get to lower your personal income by $24,000! Simply by engaging your children in the family business.
If they stay under this limit, they don’t even have to file a tax return, which means they don’t pay any income tax on it. And you get to deduct their wages, which lowers your business’ taxable income.
BUT WAIT. THERE'S MORE.
The IRS ACTUALLY Rewards You For It! Source: Publication 929 (2020), Tax Rules for Children and Dependents)
If you have children between the ages of 7 - 22, you can use this strategy to save some money. Here is how it works:
- Each of your children can be employed by your business and paid an annual wage of $12,000. This is an important amount because it is the standard deduction amount for single individuals.
- Your business gets to take a deduction for the payment, thus decreasing your taxable income.
- Your children will then file their own tax return, & since they only made $12,000 they pay no federal income tax because of the standard deduction of $12,000, their taxable income is ZERO.
- So the business gets to take a deduction, but the kids pay no federal income tax. It does not get much easier than that!
This strategy can also be combined with IRA and 401k strategies to really maximize the benefit. For instance, if you paid each child $12K each as salary. You could put $6K into an IRA that is deductible, and you can use their standard deduction to take their taxable income to zero.
In that case, your business can deduct $18K per child, but again, no taxable income.
If you want to save money then hire your kids and make sure you have them actually work!
Keep track of the hours and tasks your children perform and make sure it’s age-appropriate. DOL Rules Regarding Youth & Labor The IRS isn’t going to believe your 5-year-old earned $12,000 analyzing dental records. But that 5-year-old can model those pearly whites in photographs to be used on your website or brochure! It’s easy to document an “image agreement” that pays an ongoing licensing fee right from the start.
Using this strategy, rather than just dumping change into their jar, (money you likely paid personal taxes on) you’ve moved those taxable dollars from your tax rate to your child’s tax rate and bracket, which, is zero, and you still keep the money in the family!.
There are countless jobs kids can do for you, and remember, you can pay them at the SAME RATE you would pay any other employee or outsourced company.
- Cleaning the office
- Washing company cars
- Updating customer lists on the computer
- Simple to advanced Data-entry
- Transcribing video or audio
- Trips to the post office or general errands
- Helping at the office, passing out handouts, and more
- Walking door to door, placing fliers for your business
- Updating your social media accounts (They won’t even equate this as work!)
But then, let’s say after reading the guide, you find out that this strategy “doesn’t work” if your business is a corporation.
The Corporation “Problem,” and Its Simple Solution to Hire You Kids
There are different rules for different types of businesses. And that when the owners of a corporation hire their child, there are still payroll taxes like FICA to deal with.
We even pointed this out in your free guide. See for yourself:
FICA tax may not have to be withheld on work performed by a child under the age of 18 while employed by a parent in an unincorporated business (sole-proprietorship, single member LLC or a partnership where the only partners are the child’s parents). However, there is no FICA or FUTA exemption for employing a child in an incorporated business (S or C Corp) or in a partnership that includes non-parent partners. In these cases, the children are subject to the same withholding rules that apply to all other employees.
So you DO NOT have to pay payroll taxes for employing your kids if your business is a sole-proprietorship, a single-member LLC taxed as a disregarded entity, or an LLC taxed as a partnership and owned solely by you and your spouse.
But if your business is a corporation, the IRS’s rules are clear. You must pay payroll taxes on income given to your children.
So are you stuck if your small business is set up as an S or C Corp? Or if you’re planning on switching to an S Corp like we normally recommend for maximum tax advantages?
Well, it turns out there is a workaround.
As one high-profile tax strategist says: in order to lower your tax, just change the facts.
Here’s how to do it:
The Payroll Tax Workaround to Hire Your Kids
If your business is set up as an S or a C corporation, or as a partnership with other non-parent partners, the IRS says you have to withhold payroll taxes when employing your kids.
But there is a way to get around this restriction utilizing a little creativity and a “hybrid” approach.
Instead of paying your children directly from your S Corp, you pay them out of a family management company.
You can create this simple family management company as a Sole Proprietorship separate from your S Corp, and owned by yourself or your spouse.
Its only purpose is to support the operations of your Corporation, which can include the scheduling and monitoring of jobs done by your child(ren) — and all the bookkeeping and documentation necessary to keep the jobs within IRS standards.
The family management company charges the Corporation a management fee for these services and can then pay your child — which removes them from your corporate payroll.
And since the family management company is a Sole Proprietorship owned by a parent, you, or your spouse, it falls under the IRS exemption where payroll taxes don’t have to be withheld.
By following this workaround, you’ve found a way to truly pay your kids $12,000 per year tax-free using nothing but the IRS’s own rules.
For more tax-saving tips check out how my blog on Tax Deductions VS Tax Credits! Then put on your HR hat, because you've got some little new hires to train!
What Is the IRS Fresh Start Program?'
You've worked hard, but for whatever reason, you find that your tax debt cannot be paid on time and you don't know how to resolve it.
Owing the IRS for back taxes is a nightmare you never thought you would take part in. Yet, here it is. The penalties are accumulating and the threatening letters have arrived.
You're not alone. The IRS collects millions from taxpayers in penalties for failure to pay. Yet, many taxpayers are unaware that the IRS does have programs to help you get back on track.
Curious about the IRS Fresh Start Program? Check out our informative article for a helpful overview of what you need to know.
In 2008, The United States experienced a housing crash. Even before the official declaration of a financial crash, many homeowners were struggling with inflatable interest rates on mortgages and finding themselves in financial distress.
The IRS started The Fresh Start Program in 2008 as an initiative to help its citizens who were struggling to pay taxes.
The Fresh Start Program was expanded in 2012 to offer more assistance for the unemployed and businesses that were still recovering from a struggling economy that began with the housing crash.
In simplest terms, The Fresh Start Program offers a few options for individuals and businesses to pay off back taxes over time. Each option has specific requirements and regulations that must be met in order to participate in this tax relief program.
Ways to Settle Back Taxes
First, understand that although sorting through forms and filing procedures can feel very cold and frustrating, the IRS is run by people. It is not a machine.
These are people who have financial responsibilities, too. If there is a reasonable way to assist you in legally reducing your tax burden or offer payment plans, the IRS wants to do it.
With that said, working with the IRS is challenging. If you have ever tried to file your taxes on your own, you know it is time-consuming and often confusing.
Much of the difficulty in trying to resolve a tax problem on your own is due to legal terminology that requires some study and knowing which forms to file correctly.
Now imagine negotiating your back taxes on your own. This article is intended to give you a basic understanding of your options, but it is strongly recommended that you consult with a tax professional who has experience with forms and filing requirements.
Extended Installment Plan
This is a repayment agreement that allows you to pay off your tax debt in monthly payments. It is designed for people who owe $50,000 or less in taxes. With an extended installment plan, taxpayers have up to 6 years to make payments until the balance is paid in full.
The amount of monthly payment will depend on the total back taxes and accrued interest. You will also have to file financial disclosures so that an affordable monthly payment can be determined for your situation.
Businesses that owe less than $25,000 in combined taxes, interest, and penalties are also eligible to apply for an extended installment plan called an In Business Express Installment Agreement.
There are filing fees for this type of repayment plan. You may have options to negotiate penalty payments and halt tax liens.
Short Term Streamlined Repayment Plan
If you owe back taxes but will be able to pay them in a shorter extension time than 6 years, you can enter a direct debit plan for up to 180 days.
Businesses that owe between $10,000 and $24,999 are enrolled in a short-term Direct Debit Installment plan. You must have employees to be eligible.
Having monthly payments directly deposited with the IRS from your bank will help keep you on track and avoid default on your repayment plan. There are also reductions in fees and penalties by entering into a short-term direct debit plan.
Offer In Compromise (OIC)
There are situations in which a taxpayer may not be able to pay the full amount owed within 6 years. There is no limitation on the amount of tax owed to apply.
An OIC agreement is complicated and requires extensive filings and documentation to prove that your financial hardship is so severe that full repayment in full is not possible.
In this case, the taxpayer fills out application forms with financial documentation. In the application, an offer is made. This is your offer of what you can pay when filing for a reduction in the total tax debt owed.
Through filings for tax debt relief, it may be determined that your tax debt is uncollectible at this time.
This is an extreme circumstance in which you are unemployed and have no assets, suffering a major illness with large medical bills, or any other situation in which you are barely affording your most basic needs and cannot pay on the tax debt.
If your tax debt is filed as an uncollectible status, that does not mean that the debt is forgiven.
Once you are earning income again and/or acquiring assets, you will be expected to pay your back taxes. Then, you may be able to negotiate with the IRS on repayment plans.
How Can You Qualify for Tax Relief?
Before you can begin to apply for payment plans or an OIC through the IRS Fresh Start Program, you must be in compliance. The following outlines your steps to qualify for tax relief.
- Owe Less Than $50,000
To qualify for a repayment plan under the guidelines of The IRS Fresh Start Program, your tax debt must be under $50,000. This does not include an OIC. An Offer In Compromise can be submitted for any tax amount.
Businesses are also eligible to apply if they owe less than $25,000 and are able to meet monthly payments. The business must have employees.
- First Time Delinquent Tax Payer
In order to receive some of the benefits given under repayment agreements, you must not be a repeat offender. This means opportunities to apply for removal of Federal Tax Liens and penalties will not be given.
- Tax Filings Are Up To Date
This means that all of the years that have not been filed must now be up to date regardless of your ability to pay. The IRS will not accept an application for The Fresh Start Program until all filings are complete and accurate.
- Maintain Compliance For 5 Years
If you are approved for an installment plan or OIC, you must continue to pay your taxes on time for the next 5 years.
If you fail to pay on time within 5 years, the IRS has the authority to find you out of compliance and reinstate the full amount previously owed. This includes the full-back tax, penalties, and interest.
Why Should You Consult With a Professional Tax Service?
The fact that you do owe back taxes and have not been able to resolve the amount owed and return to compliance with the IRS is a serious problem.
It may make you feel that you are in over your head. In truth, you are.
Gathering all of your necessary documents to file previous years' returns, following guidelines for late filing fees, and determining the correct forms to submit are going to be a lot of work and study on your part.
What happens if you submit forms incorrectly? Have you had tax notices reviewed to see if they are accurate? What if you enter into an agreement and do not fully understand the requirements and then default?
A professional who is experienced with various tax relief programs can help you to negotiate your tax debt with the IRS in a manner that is done right.
Knowing the law and your rights under tax relief is important to avoid future problems.
A qualified CPA can assist you with financial planning that keeps you on track. They can also help you with further negotiations if you fail to meet deadlines in your repayment agreement.
Get Expert Advice For Applying to the IRS Fresh Start Program
Getting behind in filing your taxes or being unable to pay the full amount of your tax debt on time is a situation that happens to millions of Americans. It is a stressful problem because of legal terminology that most of us cannot figure out on our own.
This article has outlined some of the repayment options you may be eligible for with The IRS Fresh Start Program. There are both immediate and long-term requirements that must be met to qualify.
Keith L. Jones, CPA specializes in IRS tax debt relief, tax resolution, and back tax filing. There is a no-cost obligation with your consultation.
Get your financial freedom back. Gather your tax documents and any IRS notices and make an appointment today.
You can pay your taxes via the IRS Fresh Start program also known as IRS tax forgiveness programs.
Sometimes, we forget to file our returns. Some people have it worse—they go through difficult times and no longer have the financial means to pay their taxes.
If you are facing an IRS tax debt problem, what should you do? I am often asked, “what are the IRS tax relief programs and how can I get them?” Today, that is exactly what I am sharing with you.
Offer in Compromise
The Offer in Compromise is a tax program from the IRS where you can settle your tax debts less than the full amount that you owe. It allows you to settle your financial burden without paying your entire tax liability.
The thing with this program is that the IRS considers several factors before your application gets approved.
When you apply for the IRS offer in Compromise, here are some of the things you need to think about:
- Ability to pay – the IRS will determine your capacity to pay. Among other things, they will investigate your financial status, your assets, and many other things.
- Income – the government needs to know whether or not you have a source of income. If you do, they need to know how much you are earning.
- Expenses – they also check what expenses you have. If you are in debt, they need to validate this with creditors.
- Asset equity – the government will check if you own properties such as cars, lots, and houses. If there is a possibility of selling these assets legitimately, they will take this into the equation before they decide whether you qualify for the IRS payment plan or not.
Not everybody is eligible for this program. The first thing you have to do is to apply for it. However, you cannot apply for eligibility if you did not file tax returns for the previous year. It is best to consult a professional to get help.
Tax Debt Relief
Tax debt relief is a government program that makes it easier to pay your back taxes. It allows people to avoid huge penalties and jail time. We can call it the IRS hardship program since it is for people going through financial troubles.
The tax debt relief comes in the form of a payment plan or a settlement. In a payment plan, the IRS will give you some months to pay what you owe. In return, you have to pay what you owe in increments.
In a settlement, the IRS will charge less than what you owe. You will pay a lump sum for now and then pay the rest within several months.
Before you even consider doing this, you need to have a plan. For example, you need to know your options before the deadline, which is April 15. The last thing you want is to go to the IRS because someone taught you how to settle with the IRS by yourself and then realize that you do not qualify.
Also, I want to point out that the tax debt relief program is not for everybody. At best, it is reserved or people who:
- Went through a disaster like a hurricane or an earthquake
- Have an unexpectedly high tax because of a surge in income
There are several options if you apply for tax debt relief programs, which I will describe below.
- Installment Agreement – you pay your back taxes in multiple increments. Usually, the IRS could grant you up to 72 months to pay all your debts. Please note that this only applies if what you owe is less than $50,000.
- Innocent Spouse Relief – if you went through a divorce and you can prove that you have no liability with your ex-spouse’s taxes, you can get relief. Before you qualify, you must file taxes jointly and then prove your innocence.
- Offer in Compromise – in this situation, you make an offer to the IRS. You will pay less than what you should pay.
- Currently Not Collectible – you can only get this if you can prove that paying any amount of tax is detrimental to your living condition. It does not absolve you from paying, but the IRS will not bug you for not paying until you have recuperated financially.
If you think you cannot qualify for the tax debt relief program, your only course of action is to pay what you owe. You can use a credit card, get a HELOC, or borrow from your 401K. You can also learn a new skill like freelance writing and earn money on the side.
While there are ludicrous stories of people paying only $10 for a tax debt of $10,000, this kind of settlement rarely happens. If at all, these stories get highlighted by the media because they are fantastic stories that get a wide audience.
However, it is rather an exception than the norm. The IRS will do what it can to charge you what you owe. You can only get significant abatement from your tax debts if you can prove that you are in deep financial trouble.
IRS Forgiveness Program
Some people asked me about the IRS one time forgiveness 2021. I thought I might as well explain it here.
It is the same as what I have explained earlier. Some people think that they can get away with taxes, and some even call it the IRS fresh start program.
This information is wrong. If anything, the IRS does not cancel out your debt. You still have to pay what you owe, or at least a portion of it.
For this forgiveness program to work, the following things must happen:
- You have to apply to the program and secure an acceptance.
- You must agree to stay current in your tax returns moving forward
- You must agree with the terms that the IRS asks of you
- You must allow the IRS to review your financial status from time to time
- You pay your taxes as agreed with the IRS
As you can see, your only recourse is to settle. There is rarely any instance that the IRS will forgive your taxes. Even businesses that file for bankruptcy have to pay. They sell their assets, and they pay part of their due taxes from this sale.
You cannot get away from taxes. The first thing you have to do right now is to change your mindset. Save money so if something bad happens, you can still pay what you owe. The last thing that you want is to deal with the government.
Make it a regular habit to set aside money from what you earned. Keep them and then consult a professional accountant who will guide you through the entire process. Get an accountant you can trust, not one who would embezzle your money.
Summary: What Are the IRS Tax Relief Programs?
The tax debt relief programs of the IRS come in many forms. While you can apply for these things on your own, it is best to consult an accountant. It is not unusual for me to hear from clients how they got misinformed.
They have expectations that never came to fruition, all because they relied so much on advice from the internet or people who made unusual claims. Remember that the IRS deals with tax cases on a case per case basis—what worked for one person does not mean it will work for you.
IRS Tax Form 941 for Payroll Tax Filing
Here’s everything you need to know about payroll tax filing, quarterly returns, and form 941.
Remember the thrill of your first paycheck? Remember feeling less thrilled when you discovered that your employer held some money for income taxes and Social Security?
That is payroll tax. Likewise now it’s your turn for payroll tax filing and to file form 941 and be the bearer of bad news. Certainly, you have employees, therefore, you pay into their income & FICA (Social Security & Medicare) taxes by withholding some of their paychecks.
Here, we’ll go over IRS Form 941, the tax form that makes all this possible.
What is Form 941?
Employers must submit IRS Form 941, also known as the Quarterly Federal Tax Return, to report three different taxes via payroll tax filing:
Most noteworthy is the federal income tax in addition to other payroll taxes withheld from employee paychecks like social security and Medicare. Finally the employer’s portion of social security or Medicare tax. You use Form 941 quarterly to report these taxes on your federal payroll tax filing.
Most likely, you’ll make the tax payments themselves monthly or every two weeks through direct deposits (more on that below), depending on the dates wages are paid.
If you pay wages to an employee (remember: there’s a difference between employees and independent contractors) you have to withhold or ‘hold onto’ some of their pay to cover things like income taxes, social security, and Medicare therefore you have to file Form 941.
If you’re a seasonal employer, you only need to File Form 941 in quarters where you’ve paid employee’s wages. If you’re paying less than $1,000 in employment tax in a tax year, you’re off the hook (but you must file Form 944 instead). And if your employees are “household employees” (a house cook or nanny, that kind of thing), you’ll just fill out Schedule H from Form 1040.
If you’re a new employer, have never withheld money from an employee’s paycheck, and never filed Form 941, talk to an accountant to make sure your bookkeeping and payroll are set up and that you’re signed up for EFTPS deposits. You can do this over the phone by calling the IRS at 1-800-555-3453 (have your bank account info ready) or online at the EFTPS website. You’ll then have to create a password for your Electronic Federal Tax Payment System account, which you then must log in here.
You still have to file Form 941. Only seasonal and agricultural employers who show their status on line 18 of the form don’t have to file Form 941. (See the IRS’s instructions to Form 941 for more information about who doesn’t have to file.)
What do I need to have ready before payroll tax filing?
Have your tax and payroll records on hand, and information about taxable tips your employees collected this quarter (here’s the IRS’s guide to tip record keeping).
How to pay payroll taxes online?
You can e-file Form 941 yourself online, or you can have someone else do it for you.
What does it look like?
The current Form 941 PDF from the IRS contains a two-page form, a voucher, and a fourth extra page of instructions. Besides the employer information section at the top, the form contains five parts.
The employer information section
Here you’ll show which period you’re reporting for, your name, address, and employer identification number (EIN). Don’t use your social security number (SSN) or individual taxpayer identification number (ITIN) here. You can apply for an EIN online at IRS.gov/EIN.
Line 1: Asks you for the number of employees working for you.
Line 2: Asks for any wages, tips, or other compensation you paid them.
Line 3: Asks for income taxes you withheld from employees’ paychecks. If you have no wages, tips, or other compensation subject to social security or Medicare to report this quarter, check the box on line 4.
Line 5: This is the heart of Form 941. It’s all about calculating your tax obligations and making sure they’re up to date. Line 5a will ask you to multiply total wages by 12.4% to calculate your social security tax obligation on wages.
Line 5b: Asks you to do the same thing for tips.
Line 5c: Is all about calculating Medicare taxes. The current rate of 2.9% covers both your portion and the employees’ portion.
Line 5d: Is about any additional taxes on employee compensation over $200,000, which is taxed at 0.9% and paid by employees.
Line 5e: Will ask you to total up all the amounts above.Line 5f: Is for employers who have been asked
by the IRS to pay additional taxes on unreported tips. (See the instructions for 941 for more.)
Lines 6-10: Will walk you through calculating your total taxes after adjustments, which you’ll make to account for things like sick pay and group-term life insurance. Line 11 is about the qualified small business payroll tax credit for increasing research activities, which you can read more about Instructions for Form 941.
Lines 12-14: Take your total taxes and subtract any payments you’ve already made to come up with your total balance due. If you overpaid (i.e. line 13 is greater than line 12) you report that on line 15.
This part is where you’ll figure out how often you must send the IRS the taxes you calculated in part 1. Most employers will have to deposit monthly or every two weeks. If you deposit semi-weekly, you must explain your tax liability on Schedule B of Form 941. If you owe more than $100,000 in taxes for the quarter, you must deposit these taxes immediately.
Here you’ll show whether you’ve stopped paying wages altogether and whether you have any seasonal employees. If you do, you might not need to file 941 every quarter.
If you want to let an accountant, lawyer, or tax prep professional discuss this form with the IRS on your behalf, this is where you’ll give them permission to do so.
Sign and date here to ensure everything you’ve entered is correct.
Form 941-V, Payment Voucher
If you have a total balance due (i.e. line 14 contains a positive number) use this voucher to pay any taxes you owe to the IRS.
When do I need to Form 941?
If you’ve never filed 941, you must file your first copy at the end of the quarter in which your business first started paying employee wages. You then must file on the last day of the month that follows the end of every quarter after that.
If you’re not sure when the quarter begins and ends, consult the following chart from the IRS:
|The Quarter Includes…||Quarter
941 Is Due
quarter: January, February, March
quarter: April, May, June
quarter: July, August, September
quarter: October, November, December
Report Payroll Taxes
You must report taxes you deposit by filing Forms 940, 941, and 944 on paper or through e-file.
Federal Income Tax and Social Security and Medicare Tax
If you held federal income tax or social security and Medicare taxes, subsequently, then you must file Form 941, Employer's Quarterly Federal Tax Return each quarter. This includes withholding on sick pay and supplemental unemployment benefits.
For a step by step guide on filling out form 941, read my post last month called What You Should Know About Payroll Tax Filling Form 941
Federal Unemployment Tax Act (FUTA)
Only the employer pays FUTA tax; it is not withheld from the employee's wages. Report your FUTA taxes by filing Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.
Preparing and Filing Form W-2
At the end of the year, the employer must complete Form W-2, Wage and Tax Statement to report wages, tips, and other compensation paid to an employee. File Copy A of all paper and electronic Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the Social Security Administration (SSA). File Copy 1 to an employee’s state or local tax department. The detailed instructions are listed on the back of these forms.
Two deposit schedules are in effect. They are monthly and semi-weekly where you must deposit federal income tax withheld and both the employer and employee social security and Medicare taxes.
However, before, the beginning of each calendar year, you must look up which deposit schedule you have to use which is based on your 941 total tax liability. You would have reported this during a special rule for Forms 944 and 945. Schedules for depositing and reporting taxes are not the same.
You must use electronic funds transfer (EFTPS) to make all federal tax deposits.
Under the monthly deposit schedule, deposit employment taxes on payments made during a month by the 15th day of the following month. Employers who deposit monthly should only report their deposits quarterly or annually by filing Form 941 or Form 944.
Under the semiweekly deposit schedule, deposit employment taxes for payments made on Wednesday, Thursday, and/or Friday by the following Wednesday. Deposit taxes for payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday. Report your deposits quarterly or annually only by filing Form 941 or Form 944.
Deposit FUTA tax by the last day of the first month that follows the end of the quarter. If the due date for making your deposit falls on a Saturday, Sunday, or legal holiday, you may make your deposit on the next business day.
Here Are IRS Published Upcoming Payroll Tax Dates
Deposit payroll tax for payments on Feb 5-7 if the semiweekly deposit rule applies.
Deposit payroll tax for payments on Feb 8-11 if the semiweekly deposit rule applies.
File Form 8038-GC, Consolidated Information Return for Small Tax-Exempt Government Bond Issues
File Forms 990, 990-EZ, 990-PF, 990-N, 990-BL, 990-T (Trusts other than section 401(a) or 408(a) trusts), 4720, or 8868
File Form 8038, 8038-B, 8038-G, 8038-TC for bonds issued in Oct/Nov/Dec 2019
File a new Form W-4 if you claimed exemption from income tax withholding in 2019.
Furnish Forms 1099-B, 1099-S and certain Forms 1099-MISC to recipients.
Deposit payroll tax for Jan if the monthly deposit rule applies.
Start withholding tax from employees who claimed exemption from withholding in 2019 but did not file a W-4. This was to continue withholding exemption in 2020.
Deposit payroll tax for payments on Feb 12-14 if the semiweekly deposit rule applies.
Deposit payroll tax for payments on Feb 15-18 if the semiweekly deposit rule applies.
Deposit payroll tax for payments on Feb 19-21 if the semiweekly deposit rule applies.
File Form 1096 with information returns, including Forms 1098, 1099, and W-2G for payments made during 2019.
File paper Forms 1094-C and 1095-C with IRS if you are an Applicable Large Employer; For all other providers file paper Forms 1094-B and 1095-B with the IRS
Deposit payroll tax for payments on Feb 22-25 if the semiweekly deposit rule applies.
File Form 8027 if you are a large food or beverage establishment.
File Form 730 and pay the tax on wagers accepted during January.
File Form 2290 and pay the tax for vehicles first used in January.
Farmers and fishermen: File Form 1040 and pay any tax due. However, you have until Apr 15 to file if you paid your 2019 estimated tax payments by Jan 15, 2020.
Deposit payroll tax for payments on Feb 26-28 if the semiweekly deposit rule applies.
Deposit payroll tax for payments on Feb 29 - Mar 3 if the semiweekly deposit rule applies.
Employers: Employees are required to report to you tips of $20 or more earned during February.
Deposit payroll tax for payments on Mar 4-6 if the semiweekly deposit rule applies.
If you withhold payroll tax and don't report or pay it then you may need to read my post on Payroll Tax Debt!
The richest Americans pay less tax via paid overall a lower tax rate than average due to what the IRS shows they do differently.
The ultra-rich save the most tax, according to IRS statistics. And over 90% of them have one thing in common. They do not sign their own returns. They hire tax pros instead. It shows they paid at a combined 24% rate on average, down 1% compared to the 25% national average.
The more money you make, the more complicated the returns. But it also means the more money you have for tax planning, to pay someone to navigate the complex tax system. They find ways to legally avoid paying tax.
Most less wealthy Americans don't pay for tax planning. Thus they miss out on the various ways of legally avoiding paying taxes. Tax avoidance is finding ways within the law to keep taxation at its smallest amount. That, after all, is what the paid professionals are there to do.
Here’s what you need to know.
What Tax Planning Really Does
Tax planning is the art of arranging your affairs in ways that postpone or avoid taxes as allowed through the ever-changing tax regulations. By employing effective tax planning strategies, you can have more money to save and invest or more money to spend.
Put another way, tax planning means deferring and flat out avoiding taxes by taking advantage of beneficial tax-law provisions, increasing and accelerating tax deductions and tax credits, and generally making maximum use of all applicable breaks available under our fabulous IRS Code.
While the federal income tax rules are now more complicated than ever, the benefits of good tax planning to pay less tax are arguably more valuable than ever before.
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You might ask yourself if you can afford Tax planning, but the real question is - Can you afford not to plan and pay less tax?
There are three main collection alternatives taxpayers use to resolve an IRS back-tax debt: Installment Agreement, Uncollectable Status and Offer-in-Compromise.
Collection alternatives if you cannot pay the tax debt
We know the story: things are tight financially, so you either (1) do not file the tax return, or (2) file the return but don’t pay the balance due. But do not worry, you tell yourself, next year will be better.
Now it is 2-3 years later and a letter arrives from the IRS, and the threats start, and maybe it has even gotten to the point of actual levy and seizure activity.
Now the IRS is wreaking havoc on your financial life and you simply do not know what to do.
We know. We have helped many clients through that exact scenario. Fear not, there is a light at the end of the tunnel.
The most commonly used alternatives are extensions of time to pay and streamlined installment agreements. That’s because most individual taxpayers just need a few weeks to get the funds to pay their tax bill, or they can pay monthly.
As it turns out the IRS is usually only too happy to work with taxpayers, but there are some ground rule you need to be aware of and a roadmap to follow.
1. Tax Compliance
The first step in resolving your tax issue is to get into “tax Compliance.” Compliance means that you have filed all tax returns due for the last 6 years and have made your current tax payments. Once you are in tax compliance we can now work on resolving the back-tax issue.
2. Collection Alternatives
There are three main collection alternatives to resolve a back-tax debt: Installment Agreement, Uncollectable Status, and Offer-in-Compromise.
An installment agreement is an agreement to pay the taxes back over time. There are three variations of the installment agreement: Regular, Streamlined, and Partial-Pay.
Which type of agreement works best for you will depend upon your personal circumstances and is something we can help you address when you are ready.
Uncollectable status is when the IRS determines that you are unable to make current tax payments.
When a taxpayer is deemed uncollectable the IRS may still file a Notice of Federal Tax Lien to secure its position in the taxpayer’s assets but will not otherwise take enforcement action to seize (or levy) the taxpayer’s assets or income streams.
If you cannot pay the IRS, you can request currently not collectible (CNC) status, which strictly limits allowable expenses to necessary living expenses limited by IRS collection financial standards. CNC status is usually temporary; the IRS uses manual and automated procedures to determine whether your client’s financial situation has improved.
For CNC arrangements, the IRS will file a tax lien if more than $10,000 is owed. To request a CNC arrangement, you must contact the IRS by phone, in writing, or in person.
An Offer-in-Compromise is an agreement where the IRS agrees to accept less than the total amount owed to it and the taxpayer agrees to pay the amount negotiated, as well as maintain his or her tax compliance for 5 years following the acceptance of the Offer-in-Compromise (“Offer”).
The basis for an Offer is a formula referred to as “Reasonable Collection Potential” or “RCP.” RCP is effectively the net equity in assets plus the taxpayer’s excess future income for 12 or 24 months, depending upon how the Offer is structured.
There can be significant planning done to help a taxpayer maximize the potential for the Offer acceptance.
If you or someone you know has an issue with paying their federal taxes and needs help to end their IRS nightmare, please contact us by either phone at 844-888-1040.
IRS Gears Up for Aggressive Tax Collections and Enforcement
IRS Commissioner Charles P. Rettig testified before the Senate Finance Committee, sending the message that the IRS is committed to catching intentional tax evaders.
He stated "The IRS is committed to having a strong, visible, robust tax enforcement presence to appropriately support taxpayers who comply voluntarily. When taxpayers file their returns, they should feel confident others are doing the right thing too. Enforcement of the tax laws is critical to ensuring fairness in our tax system. IRS employees who collect taxes, audit returns, and investigate fraud, as well as tax-related identity theft, work hard throughout the year to enforce the tax laws while treating taxpayers fairly and respecting their rights."
There was no ambiguity in the message of his testimony to Congress; he noted that under his watch, the IRS will aggressively pursue those purposely evading their tax obligations with civil and criminal enforcement.
The commissioner made sure to mention that those who were not defrauding the system intentionally had nothing to worry about; they are not the target of stepped-up enforcement.
The IRS will be targeting five major enforcement initiatives:
Technology – The IRS will put a new focus on their use of technology as an enforcement tool; specifically, advanced data and analytical strategies. With this data-driven approach, the IRS believes it will be able to catch tax fraud impossible to spot even just a few years ago.
Offshore Tax Evasion – Offshore tax reporting enforcement is a long-standing priority of the IRS, but the current commissioner reiterated the focus on this area, so don’t expect to see any easing here.
Tax Shelters – The IRS believes many taxpayers are abusing two tax shelters, syndicated conservation easements, and micro-captive insurance arrangements. They plan on stepped-up tax enforcement on both those who arrange these shelters and taxpayers who participate in them.
Cryptocurrency – The IRS believes there is mass non-compliance in the world of cryptocurrencies through either underreporting or non-reporting of taxable transactions.
Wealthy Taxpayers – Tax enforcement actions take time and are resource-intensive, so it should be no surprise that the IRS is going after non-compliant taxpayers with the biggest ROI. The IRS is considering anyone with an income level of over $100,000 to be high-income.
Expect to see increased tax enforcement efforts ahead, with a focus on those who are intentionally evading the system. If you haven’t purposely defrauded the system, you have little to worry about.
THE PRESIDENT’S FY 2021 BUDGET
The President’s FY 2021 budget proposal for the IRS provides $12 billion to
administer the nation’s tax system fairly, collect more than $3.6 trillion in gross taxes to fund the government, and strengthen tax compliance.
In addition to the base appropriations request, the Budget proposes a program integrity cap adjustment that would provide an additional $400 million in FY 2021 to fund investments in the IRS tax enforcement program.
These investments will generate $79 billion in additional revenue over 10 years and cost $15 billion, for net revenue of $64 billion over 10 years, which will help reduce the net tax gap of $381 billion.
LEGISLATIVE PROPOSALS IN THE PRESIDENT’S FY 2021 BUDGET
Along with the funding requested in the President’s FY 2021 Budget, the IRS is asking for Congress’s help legislatively in several important areas that would improve tax administration and support the IRS in fulfilling its mission in tax enforcement, including the following:
Greater Flexibility to Address Correctable Errors. The budget would expand the IRS authority to correct errors on taxpayer returns. Current law only allows the IRS to correct errors on returns in certain limited instances, such as basic math errors or the failure to include the appropriate social security number (SSN) or taxpayer-identification number.
This proposal would expand the still limited instances in
which the IRS could correct a taxpayer’s return to situations where:
(1) the information provided by the taxpayer does not match the information contained in Government databases or Form W-2, or from other third-party databases as the Secretary determines by regulation;
(2) the taxpayer exceeded the lifetime limit for claiming a deduction or credit; or
(3) the taxpayer failed to include with his or her return certain documentation that is required to be included on or attached to the
This proposal would lessen taxpayer burdens and make it easier for IRS
to correct verified taxpayer errors, directly improving tax compliance and reducing EITC and other improper payments, and freeing limited IRS resources for other compliance activities.
Increase Oversight of Paid Tax Return Preparers. Paid tax return preparers
have an important role in tax administration because they assist taxpayers in complying with their obligations under the tax laws.
Incompetent and dishonest tax return preparers burden unsuspecting taxpayers, increase collection costs, reduce revenues, disadvantage taxpayers by potentially subjecting them to penalties and interest because of incorrect returns, and undermine confidence in the tax system.
To promote high quality services from paid tax return preparers, the proposal would explicitly provide that the Secretary of the Treasury has the authority to regulate all paid tax return preparers.
Improve Clarity in Worker Classification and Information Reporting. The
budget proposes to:
(1) establish a new safe harbor that allows a service recipient to classify a service provider as an independent contractor and requires withholding of individual income taxes to this independent contractor at a rate of five percent on the first $20,000 of payments; and
(2) raises the reporting threshold for payments to all independent contractors from $600 to $1,000, and reduces the reporting threshold for third-party settlement organizations from $20,000 and 200 transactions per payee to $1,000 without regard to the number of transactions.
In addition, Form 1099-K would be required to be filed with the IRS by January 31 of the year following the year for which the information is being reported. Significant information reporting and withholding can result in a 90% effective rate of voluntary compliance.
The proposal lessens worker classification disputes with service recipients, increases clarity in the tax code, reduces costly litigation, and significantly improves tax compliance.
In addition, the President’s FY 2021 Budget request also includes these two
provisions related to tax administration:
Fund the Federal Payment Levy Program via Collections: This proposal would allow the Fiscal Service to retain a portion of the funds collected under the Bureau’s Federal Payment Levy Program (FPLP) which processes and collects delinquent tax debts through the Treasury Offset Program (TOP).
TOP currently recoups its costs from retained amounts from collected amounts for all its programs except for the FPLP but under current law, the IRS must pay these costs through annual reimbursement agreements under the Economy Act. This proposal would make
the FPLP consistent with other TOP programs.
Delinquent taxpayers will not be impacted by the proposal, because they will receive credit for the full amount collected. This proposal creates efficiencies, because it allows the Fiscal Service to recover its FPLP costs from the IRS in the same manner as other TOP programs.
Require a social security number (SSN) that is valid for work to claim child
tax credit (CTC), earned income tax credit (EITC), and credit for other
The Administration proposes requiring an SSN that is valid for work to claim the EITC, CTC (both the refundable and non-refundable portion), and/or the ODTC for the taxable year.
For all credits, this requirement would apply to taxpayers (including both the primary and secondary filer on a joint return) and all qualifying children or dependents.
Under current law, taxpayers who do not have an SSN that is valid for work may claim the CTC if the qualifying child for whom the credit is claimed has a valid SSN.
Furthermore, the ODTC, created by the Tax Cuts and Jobs Act, allows taxpayers whose dependents do not meet the requirements of the CTC, including the SSN requirement, to claim this nonrefundable credit.
This proposal would ensure that only individuals who are authorized to work in the United States could claim these credits by extending the SSN requirement for qualifying children to parents on the tax form for the CTC and instituting an SSN requirement for the ODTC.
While this SSN requirement is already current law for the EITC, this proposal also would close an administrative
gap to strengthen enforcement of the provision.
Your Best Defense Against A Bank Levy
A Collection Due Process Hearing, also known as a CDP hearing, maybe your last best chance to resolve a tax controversy and stop a bank levy with the IRS short of tax litigation.
The IRS does not allow taxpayers to request these hearings for “frivolous” reasons. That includes refusing to pay tax on religious or moral grounds.
What Are Some Legitimate Reasons to Request a CDP Hearing?
- You want to seek payment alternatives such as a payment plan or an offer in compromise. To get these plans accepted, you must file all delinquent returns.
- You have a terminal illness and overwhelming medical bills.
- You can’t pay because you’re living on Social Security or unemployment.
- You can’t afford to pay with your income—the IRS has strict guidelines on this type of hardship arrangement.
Generally, the IRS must issue a Notice of Intent to Levy and Right to Request a Hearing before it sends a levy. Requesting a Collection Due Process Hearing
Complete Form 12153 Request for a Collection Due Process Hearing, and send it to the IRS at the address shown on the lien or levy notice within 30 days.
The taxpayer should check the IRS actions that he disagrees with and explain why he disagrees with such actions.
If the taxpayer receives both a lien and a bank levy notice, the taxpayer may appeal both actions.
The taxpayer must identify all reasons for disagreement, and may raise the following issues relating to the unpaid tax:
a. Appropriateness of collection actions;
c. Appropriate spousal defenses; and
d. The existence or amount of the tax, but only if the taxpayer did not receive a notice of deficiency or did not otherwise have an opportunity to dispute the tax liability.
- To preserve the right to go to court, Form 12153 must be sent to the IRS within 30 days of receipt of the notice from the IRS.
- Under CDP, a taxpayer is entitled to only one hearing relating to a lien notice and one hearing relating to a levy notice, for each taxable period.
- If a taxpayer receives a subsequent lien or levy notice after requesting a hearing on an earlier notice, Appeals can consider both matters at the same time.
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Frequently Asked Questions
What Is A Financial Institution (Bank Account) Levy?
A bank levy is an order from the IRS to seize money from a taxpayer's bank account. The levy can be in the form of all the money in the account or a certain percentage of it. The IRS is usually pretty aggressive in going after levies, so taxpayers should always try to reach out and negotiate with the agency if they're having trouble paying their taxes.
How A Bank Account Levy Works?
A bank levy is when a creditor seizes money from a debtor's bank account to satisfy a debt. The money seized can be used to pay the creditor directly, or it can be used to pay off the debt in full. If there's not enough money in the account to cover the entire debt, the creditor may seize whatever money is in the account, even if that means taking all of the money and leaving the debtor with an empty bank account.
The Federal Government has several options for collecting tax debts, including wage garnishment, asset seizure, and bank levy. Which option they choose depends on several factors, including how much money they think they can get from the debtor and how much hassle they're willing to go
Avoiding A Financial Institution Levy: What Can We Do?
Try to negotiate a payment plan with the IRS. They may be more willing to work with you if they know you're trying to make a payment plan and not just ignoring them. You may be able to avoid legal action and have taxes withheld from your paycheck if you pay off any outstanding debts before they become due.
How Long Does A Levy Stay On Your Bank Account?
A levy stays on your bank account until it's paid in full or released. A levy is a legal seizure of your property to satisfy a debt. The IRS can seize funds from your bank account, wages, or assets to pay your tax debt.
Americans who are struggling financially and find it impossible to make tax payments can apply for IRS back tax relief through the IRS Fresh Start program.
How to Get IRS Back Tax Relief
Has the pandemic caused created you to fall behind on filing your federal income tax year return or paying your federal IRS tax liabilities? If it has, you are not the only one looking for IRS back tax relief.
More than 22 million taxpayers in the United States had either failed to file a current tax return or are behind in paying their IRS taxes due and that was before the pandemic hit.
This relief ranged from postponing certain installment payments related to Installment Agreements and Offers in Compromise to the collection and limiting certain enforcement actions.
Past-Due tax returns were still due and the IRS "continued its work to secure unfiled tax returns" but told taxpayers' in an official statement that they "should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020" thus moving the April 15th deadline and extending the filing season.
Mission-critical functions continued with certain IRS services such as live assistance on telephones, processing paper tax returns, and responding to correspondence were and still are extremely limited.
Current year Tax return bills did not go away and unpaid taxes for prior years still accrued penalties and interest.
If things have been tight financially, it can be easy to ignore the task of filing and paying your federal taxes to the IRS. Some might think that they can get caught up “next year” when things get better.
However, unfortunately, for many their financial hardship won't get better and they will skip tax filing again. And maybe again allowing the situation to snowball.
Initially, one might think they have gotten away with not paying the IRS, but eventually, the IRS will catch up with you. While procrastinating, the penalties and interest build-up to a dollar amount that is way more than what would have been owed if the returns were filed and the taxes were paid on time.
What Can The IRS Do If You Fail To Get IRS Back Tax Relief?
Internal Revenue Service Restructuring and Reform Act of 1998 was a landmark law that put respect for the individual taxpayer back into the system. It forced the IRS to more fully communicate with the public and grant taxpayers "due process" rights.
But make no mistake about it, the IRS is not a joke and has almost unlimited power. They can take away your car, your house, garnish wages, clean out your bank account and retirement fund, as well as restrict your travel by seizing your passport.
They will take anything of value – jewelry, precious family heirlooms, artwork, your gun collection, even garnish part of your social security earnings.
By then, the penalties and interest will be so high that it will feel like an impossible situation to get out of.
Did you know that some of IRS debt may not be forgiven if one declares bankruptcy? This is correct.
Just the anxiety alone is not worth getting behind on your taxes. Especially at a time when everyone needs to keep their stress level low and their immune system in tip-top shape to fight the coronavirus.
For some, the added stress could cause a more severe illness. And that's the last thing that is needed because in a worst-case scenario, that can lead to lost wages and hospital bills on top of your IRS debt.
Save Your Marriage With IRS Back Tax Relief
You owe it to yourself and your loved ones to begin the journey of coming clean with the IRS. A huge burden will be lifted from your shoulders and you will feel enormous relief when you take the first step toward getting your IRS issues resolved.
Sleep at night with IRS Back Tax Relief
So, let's see if we can begin to relieve some of that anxiety. We will take a look at all of the steps and options that you have when you get behind in filing or paying your federal income taxes to the IRS.
Facts about IRS Back Tax Relief or Tax Debt Resolution
Here are some facts about resolving your debt with the IRS.
1. The IRS wants to work with taxpayers and grant IRS back tax relief The IRS is actually on your side, in a way. The agency is typically eager and happy to collect old debts. It truly wants to work with taxpayers, but there are many, many rules you need to know about and a process to follow.
2. Only 3 types of professionals can represent you before the IRS.
While you can represent yourself in front of the IRS. It might not be the best idea, especially if your debt is very high or you've ignored the situation for a long time.
There are only three types of professionals that can represent your case at the IRS:
1) CPAs, Certified Public Accountants. But be careful: not all CPAs are experienced in IRS representation.
2) EAs, Enrolled Agents. Again, make sure the EA has experience representing clients to the IRS.
3) Attorneys. Same story as above. Not all attorneys are tax attorneys, and even not all tax attorneys have a bustling representation practice.
A great question to ask anyone you are looking to hire is “What is your offer-in-compromise acceptance rate?” 3. You'll probably need to get your bookkeeping caught up.
If you're behind on your taxes, it can often follow that you are behind on your bookkeeping as well. Anyone you hire is going to need good numbers in order to work with you, so a good first step is to catch up on your bookkeeping.
Often, tax resolution professionals provide bookkeeping catch-up services. They'll do the minimum you need in order to get you or your business in compliance.
4. You will probably need to open all of your IRS mail.
Yep, we know you. It's sitting in a stack somewhere in your home. If you haven't opened the mail, start opening it up.
It's helpful for tax professionals to know what type of notice you received. In most cases, tax resolution specialists will know the letter by form number, and that will give them an idea of where to start with your case.
The Internal Revenue Service, state tax agencies, and local entities will send a letter if one of the following happens:
- You miss a deadline for filing payroll tax reports.
- You miss a deadline for filing your personal or corporate income tax returns.
- You miss a deadline for paying the tax due from your personal or corporate income tax returns.
- You miss a deadline for filing and/or paying corporate franchise tax due.
- An amount paid is short or over what the IRS or another tax agency calculates as due.
- The agency notices a discrepancy on any of your tax returns and needs an explanation.
- You have been selected for an audit.
- You fail to respond to previous correspondence.
Getting into Compliance for IRS Back Tax Relief
Here is what you need to do to get into “compliance” with the IRS. You can't have any debt forgiven until you get into compliance.
5. You should almost always file your past due tax returns, but there are some exceptions and filing needs to be done carefully so additional debt is not triggered.
Before any debt can be forgiven, the taxpayer needs to get into compliance.
This means all past-due returns must be filed. You don't have to pay off all your debt at this time; we'll talk about what you need to pay in the next item.
However, there are a couple of really big “ifs” when it comes to this step. In rare situations, filing can trigger more debt. Also, filing a particular way can also trigger more debt.
That's why it just makes sense to get a tax resolution professional involved in every step of this process, so they can keep you out of more trouble than you're already in.
6. Pay your current taxes.
While you don't have to pay all of your old IRS debt, you do have to be paying your current taxes. This is part of getting into compliance. You need to be able to show IRS that you can pay your taxes that are current.
This means that if you have a job as an employee, withholding is being withheld from your current paychecks. Or, if you're an entrepreneur taking draws, that you are currently making your estimated tax payments.
Paying Off Your IRS Debt: Options for IRS Back Tax Relief
Here are the options you have for paying off your IRS debt.
7. Pay off the entire amount, including penalties and interest.
If you can afford to, just pay it off. You will save on legal fees, but if you're a first-time offender, you may be paying penalties and interest that you might have gotten out of if you hired someone.
8. If the IRS has made an error, get the error corrected.
For this you need a Tax Resolution Professional – they can get into the RIS files and find what they have on you. It can be scary to talk to an IRS person directly.
Review return for errors, amend return, file paper return to IRS.
IRS errors usually refer to when the IRS files a return on your behalf (called a "Substitute For Return" or SFR) and only uses the info they have on hand. Therefore, no deductions are used.
9. Spouse issue You may also have a special situation with your spouse if they promised to file and did not or they do not file correctly, or they don't pay.
As a business or an individual taxpayer, you may receive a penalty on top of what you owe to the IRS. It allows compliant taxpayers to request abatement or remove certain penalties.
A penalty abatement is a tax problem resolution designed to fully eliminate or lessen the degree of IRS penalties.
The IRS penalties can roll out penalties that range from imprisonment to civil fines.
Those fines can be over 25 percent of the total owed to the IRS.
If you have tried applying for an offer in compromise and it was rejected, penalty abatement is the next best tax problem resolution to consider.
You can use it when negotiating repayment method terms or an installment agreement.
There are several types of installment agreements:
- In Business; and
11. Understand RCP: Reasonable Collection Potential One of the key concepts in getting IRS back tax relief can be Reasonable Collection Potential or RCP.
It is the basis for making an offer to the IRS as to what you can pay.
RCP is a complicated formula based on the assets and income you currently have.
A tax representation professional can work with you to create a personal budget that can be used to present an offer to the IRS.
We will discuss offers a little later in this article.
When good, hard work is performed to create the budget, the taxpayer's chances of getting their offer accepted by the IRS improve.