Achieve Tax Resolution with an Offer in Compromise

An offer in compromise is the IRS’ tax resolution debt settlement program. It’s a program for taxpayers who owe the Internal Revenue Service more money than they can afford to pay.

It’s the IRS’s version of a “fresh start” when it comes to tax debt. If approved, the IRS accepts a lesser amount (sometimes a fraction of what’s owed) to settle your debt. However, it isn’t always easy to gain approval due to its strict criteria. Your odds for acceptance increase significantly when you have experience negotiating with the IRS.

The IRS considers your income, assets, expenses, ability to pay, and whether paying the full amount would cause financial hardship.

Information You Need to Submit an Application for an Offer in Compromise

 It’s important to remember that the IRS wants its money and will only accept an offer in compromise if it thinks it wouldn’t receive any money otherwise. You must be current with all filing and payment requirements to apply. Additionally, you cannot be in the process of filing bankruptcy.

You can find more information about the IRS Offer in Compromise on thwebsitee IRS  here.  If you want help with your back tax problem, contact us today for a consultation. [http://www.makemytaxes.com]

After supplying the IRS with your name, address, social security number, and the amount of tax debt you would like it to consider for this program, you need to supply details about your income, assets, and expenses. In addition to wages, your personal income can include:

  • Business profit
  • Self-employment income
  • Rental income
  • Child support or alimony
  • Interest on investments

Your assets can include things such as:

  • Stocks and bonds
  • Resale value of your personal vehicles
  • Market value of your home
  • Balance of your retirement savings accounts
  • Balance of bank accounts, including checking, savings, and investments

For the expense section, you should only include items you pay regularly. These may include:

  • Rent or mortgage
  • Child support or alimony
  • State and federal taxes
  • Daycare costs
  • Costs to maintain a vehicle
  • Auto, health, and life insurance

5.pngCompiling this information and completing the application correctly can be challenging even for tax practitioners who don’t have expertise in dealing with the IRS.r CPA or tax You advisor most likely doesn’t have experience with resolving back tax issues. That’s why we recommend working with a specialized tax resolution professional like us to better understand this option and increase your chances of approval.

 

IRS Debuts Postcard-sized 1040 for 2018

What is changing?

  • Fewer lines. The new form has only 23 lines – 50 lines less than the 2017 1040. Some of the lines saved come from the elimination of exemptions, but most come from combining many old lines into a single line.
  • Six new schedules. The complete 2018 1040 tax form is now seven tax forms. The 50+ lines removed from the old 1040 now exist on one of six new schedules. These schedules (referred to as Schedule 1, Schedule 2, etc.) use many of the same line numbers and descriptions as the old 1040, which will help for year-over-year comparability.
  • Many new lines. Lines are added to accommodate new tax legislation, like the “Qualified business income deduction” for the new 20-percent pass through deduction for business owners.

What you need to know

  • Virtually everyone now files multiple forms. This new 1040 system is anything but simple. Now the majority of taxpayers will need to complete at least one of the new schedules to file with their 1040. Even taxpayers previously using the simple 1040EZ might be required to file an additional schedule or two. The IRS website states that only “taxpayers with straightforward tax situations” will be able to skip the new schedules.
  • The postcard goal is met. While the newly proposed form 1040 is postcard-sized, the type is now smaller and filing the 1040 form now requires a lot of retraining and reprogramming. Tax software companies will be scrambling to reprogram their software, and the IRS is telling congress it will need millions of dollars to implement the changes.
  • It is still in draft form. Be aware that this version of the 1040 is in draft form and revisions are expected before it is considered final. A copy of the proposed 2018 1040 form can be viewed on the IRS website.

Unfortunately, the new 1040 form appears to be more a product of political desire rather than a strategic redesign. This added confusion is one more reason taxpayers will need help navigating this new tax landscape.

Become Debt-Free

The average household carries $137,063 in debt, while the median household income is less than $60,000, according to data from the Federal Reserve and U.S. Labor Department. While it’s easy to get into debt, it can be hard to get out. Here are five tips personal finance experts recommend to lower your debt burden:

List and prioritize

Create a list all of your debts by amount owed and the interest rate you are paying. Then prioritize your repayment based on one of two strategies:

  • The Avalanche. Focus on paying the debt with the highest interest rate first, to minimize the total interest you’ll pay.
  • The Snowball.Focus on paying the debt with the smallest balance first. While this may seem counterintuitive, it’s recommended for those who have difficulty sticking to a repayment plan. The smallest balance gets paid off sooner and then its debt repayments can be devoted to the next debt. This gives you a powerful psychological boost and sense of achievement

Pay more

Pay more than the minimum amount due. Your lender receives more interest income from you if you pay the minimum, but that’s not what you want. Think of ways you can increase your income to make the extra payments, such as:

  • Taking a second job or freelancing.
  • Asking for a raise at work.
  • Asking for a raise at work.

Spend less

Review your monthly expenses to find things that you can eliminate to increase your debt repayment. You can reward yourself by renewing these luxuries, but only after you’ve paid off what you owe. You could cut spending on things like:

  • Cable TV
  • Gym fees
  • Restaurants
  • Entertainment

Downsize and declutter
Not only does it help to spend less, it may also be worth getting rid of what you already have. Consider selling possessions you no longer need, or finding a place to live with lower rent or smaller mortgage payments. Be ready to make some sacrifices in exchange for financial freedom. Things that you may be able to part with include:

  • Sporting equipment
  • Extra or recreational vehicles
  • Electronics, games
  • Collectibles

Negotiate

It’s worth calling your lenders to see if there’s a way to lower your interest rate. They will often do this if you’ve been a longtime customer with a history of timely payments. In some cases, you can even get them to forgive part of your debt. Also consider using zero-percent balance transfer options with different credit card providers. While these may come with fees, 12 months of no interest can be worth it.

Reducing your debt burden can seem overwhelming, but small steps can yield big results.

Don’t let a divorce be more taxing than necessary

If you’re going through a divorce, taxes may be the last thing on your mind. But divorce involves many potential tax traps and pitfalls. Here are some things to know.

  • Alimony and child support. Alimony is taxable income to the person who receives it and deductible by the person who pays it, as long as it meets certain specific tax requirements. Child support is neither taxable nor deductible. A divorce agreement should clearly spell out the difference between alimony and child support.
  • Property settlement. When a divorcing couple agrees to a property settlement, there are no immediate tax consequences. But when it comes time to sell the property, one of the parties could be in for a nasty tax surprise. That’s because each spouse receives property with its original tax basis, and a low tax basis may trigger a large capital gain down the road. A truly equitable property settlement should consider the tax basis of assets, not just current market value.
  • Children. After divorce, the parent who has custody of a child for the greater part of a year generally has the right to claim that child as a dependent. However, the custodial parent may transfer the dependency exemption to the other parent by signing the appropriate IRS form. Why would you ever give away a deduction? Because it may be worth more to your ex-spouse. In exchange for the dependency deduction, you may be able to bargain for more alimony or a larger property settlement.
  • Tax filing. As a married couple, you probably have been filing a joint tax return. But during divorce proceedings, you may be better off filing separately or, if you qualify, as head of household. Once the divorce is final, your filing status will be either single or head of household. To qualify as head of household, certain requirements for dependents must be met.

Marital status is an important factor in the amount of taxes you will pay. Be aware that in divorce situations some planning might cut your taxes significantly.

New! Small Business Medical Leave Credit

There’s a new business tax credit that partially reimburses employers for providing paid family and medical leave for select employees. But small businesses should be break.informed before they try to use this new Family and Medical Leave Act (FMLA) tax

Basics of the new credit

Employers who provide at least two weeks of paid family and medical leave to employees who earn $72,000 a year or less can claim the FMLA credit to offset some of the cost of that paid leave . some details:

The credit ranges between 12.5 percent to 25 percent of the cost of the leave, depending on whether it pays 50 percent salary to a full salar

At least 50 percent of salary must be paid during the leave for employers to claim the credit

Employees must have worked for at least a year.

Up to 12 weeks of leave are eligible for the credit.

The $72,000 salary cap in 2018 will rise with inflation every year.

 

This credit comes as the result of a law requiring companies with 50 or more employees to provide up to 12 weeks of leave every year. The leave is intended to give employees time to address serious health issues, adapt to new additions to their families from births or adoptions, and to handle family military deployments.

However, small businesses with less than 50 employees aren’t covered by the FMLA, though they can voluntarily adopt a leave policy as an employee benefit and claim the new credit.

Considerations for small business owners

  • The credit currently expires after the 2019 tax year. Congress’ intention is to test adoption of the credit and later make it permanent if it’s popular with employers.
  • It requires administrative setup. You’ll have to draft a leave policy separate from your policies for regular vacation, personal, medical and sick time off.
  • It may create an employee expectation. If you haven’t provided a paid leave benefit before but assess it’s worth it due to the credit, it may be a letdown if the credit expires and you no longer offer the benefit to your employees.

Given the uncertain nature of the life of this new credit, if you plan to offer this benefit to your employees, please be prepared to know what you will do if the credit is not extended past next year.

As always, should you have any questions or concerns regarding your situation please feel free to call.{212-760-1125}

Overlooked Business Metrics

Revenue, gross margin, net profit — these are the basic metrics every small business owner watches closely. But there are also some often-overlooked metrics that can deepen your insight into your business and inform your decision-making. Here are a few:

Customer acquisition cost. Divide the total amount of money you’ve spent on marketing over a set period by the number of new customers you’ve gained. The result is your cost per new customer, also known as your customer acquisition cost. To get an even better read, divide your marketing costs into two buckets; one you spend on current customers and one for money spent to acquire new ones. Now your calculation of customer acquisition costs is even more accurate. Compare this figure against prior years to see if you are becoming more efficient.

Lead-to-client conversion rate. For many businesses, generating leads is an integral part of the selling process. If this is true for your business, clearly define each step of the sales funnel from lead to purchase. You can judge how successful your sales efforts are over time by calculating how many qualified leads are converted to sales. Remember to use these measures to refine and improve your selling process. Even a tried-and-true conversion process can get tired, but if you are not measuring it you may not know until it is too late 

To go a step further, look at how much each new customer spends on average compared with how much it cost to acquire them. Knowing your rate of return for each new customer can help you revise your marketing strategy

 

Website traffic. Use tools such as Google Analytics to find out who is visiting your website, from where, and what they spend the most time on while they’re there. You can learn a lot about your potential customers and your market by keeping notes on how your website traffic changes over time and how it reacts to new content

Seasonality. Understanding and keeping track of the seasonal trends in your business is crucial to managing cash flow and making the most of both busy and slow periods. Examining year-to-date metrics for sales and web traffic can help you prepare inventory and staffing for the busy season. It will also help you time the scheduling of technical upgrades and equipment repairs for expected down periods
Cash burn rate. Keeping a close watch on your cash flow statement as well as your income and balance sheet is the key to keeping your business afloat. Not managing cash flow well is one of the most common reasons for new small businesses to fail. Simply subtract how much cash you have at the start of the month from what you have at the end of the month. You can then divide your reserves by your cash burn rate to see how many months you can sustain that rate.
The key to this measurement is maintaining a forward-looking financial forecast for the next 12 months. This will help you take timely actions to avoid a cash crunch, such as cutting costs, improving sales or collecting accounts receivable
As always, should you have any questions or concerns regarding your situation please feel free to call.

Alimony Tax Changes Require Planning Law change to have dramatic tax impact in 2019 and beyond

The taxation of alimony will change drastically starting in 2019. Here’s what you need to know:

New rules

Any divorce agreement effective after Dec. 31, 2018 will be subject to new rules for alimony, namely:

  • Alimony is no longer tax-deductible for the payer.
  • Alimony is no longer taxed as income for the recipient.

That means that alimony will get much less affordable for those paying it, while those receiving alimony will not have to claim it as income.

What the change means

Because a person paying alimony will no longer have a tax break, he or she may not be able to afford to pay as much. This can affect the amount an ex-spouse will receive. That means tax impacts are going to be even more important part of divorce negotiations.

It also means both alimony and child support will be taxed the same way in agreements signed after 2018 (i.e., neither are tax-deductible for the payer). So if you have children, you’ll want to talk a tax professional to review how payments should be split between the two, depending on whether a divorce agreement is effective this year or later.

Remember, these new tax rules only affect divorce agreements completed in 2019. Agreements made before the end of this year or earlier won’t change. Also be aware that some states require a six-month (or longer) waiting period for couples to either file for divorce, or for a divorce to be finalized.

Helpful tips for handling alimony agreements

Divorce can be unpleasant and traumatic. But if it’s inevitable, you need to do two things:

  • Consider completing a pending divorce agreement this year, before the new alimony rules go into effect.
  • Get tax help. Because these coming tax changes are so new and so drastic, taxes are going to be front and center in any negotiations with your spouse.

Finally, for those getting married, it may make financial sense to create a prenuptial agreement laying how alimony would be handled in the event of divorce. Note that some state laws forbid any agreement in which spouses to waive the right to future alimony payments.

Call if you have any questions about alimony or other tax matters.(212-760-1125)