fbpx

Understanding Small Business Tax Deductions and Relief Options for 2022 

Small Business Tax Deductions - Rush Tax Resolution

Small business tax deductions can help your business continue to run smoothly. Here’s what to know about relief options for your small business.

The IRS defines small businesses – within the context of tax relief and deduction options – as any business with assets under $10 million. These businesses, including self-employed professionals and independent contractors, can avail of certain tax credits and deductions to help minimize their tax liability and stay afloat during the COVID pandemic. Let’s dive into the current tax relief programs and general small business tax deduction options for the new year.

Basic Business Tax Deductions and Tax Credits

Tax credits are money the IRS lets you omit from your tax liability. When a tax credit is described as refundable, the IRS lets you withdraw the remainder of as cash if your tax liability is more than covered. Most tax credits require businesses to meet certain eligibility requirements to avail for a tax credit.

The IRS provides multiple different forms for small business tax credits, from ones designed to provide special benefits to carbon dioxide sequestration programs to a tax credit for paid family and medical leave, in addition to basic tax deductions.

Tax deductions for businesses essentially allow companies to minimize their tax liability by writing off eligible business expenses, from office supplies to fuel.

Not all business expenses can be deducted. Capital expenses generally cannot be deducted, for example, unless the startup of a business fails (in which case they become capital losses). These include assets that continue to generate value for the business, such as buildings, equipment, or vehicles. In this case, the business hasn’t really lost any value – it simply moved it around, from liquid cash to an asset.

Knowing what your business can and cannot deduct can require great attention to detail and a thorough understanding of federal and state tax laws. Be sure to consult a professional when dealing with tax credits and deductions.

Coronavirus-Related Tax Relief for Small Businesses

Following the beginning of the coronavirus crisis, the government and US Treasury rolled out multiple different relief programs aimed to aid American workers, families, and small businesses, providing economic relief to keep companies and households afloat during the harshest and hardest months of the crisis.

Most of these tax relief programs ended in early to late 2021, and very few are slated to be extended into 2022, if at all.

For small businesses, in particular, coronavirus-related tax relief and financial assistance programs took on the form of an

      • Employee Retention Tax Credit
      • A Paid Sick and Family Leave Credit
      • A Paycheck Protection Program
      • An Emergency Capital Investment Program

Among these four, the first two are tax-related, in that they provide refundable tax credits, which can be used to minimize a business’s tax liability and even provide a cash infusion if withdrawn.

Employee Retention Tax Credit

The Employee Retention Tax Credit began in 2020 as a refundable tax credit equal to $5,000 per employee, or 50 percent of eligible wages paid, whichever was less. Eligible businesses that took out PPP loans are also allowed to claim an Employee Retention Tax Credit for 2020, provided they do not use the eligible wages calculated for the tax credit for their PPP loan forgiveness application.

In 2021, the Employee Retention Tax Credit was extended – first into the first quarter of the year and eventually throughout the entire fiscal year. This time, employees received a tax refund equal to the lower of either $7,000 per employee or 50 percent of eligible wages paid. Eligibility to receive an Employee Retention Tax Credit in 2021 was lowered to a 20 percent decline in gross receipts during a single quarter compared to 2019.

The Employee Retention Tax Credit has not been extended into 2022, however eligible businesses can still claim their tax credit retroactively, provided they file their amended payroll tax forms.

Paid Sick and Family Leave Tax Credit

The other major coronavirus-related tax credit was the Paid Sick and Family Leave Tax Credit, or the Paid Leave Credit.

This tax credit was provided to offset the requirement that businesses with 500 or fewer employees were required to provide paid sick and family leave for employees struggling with the results of the pandemic. It initially took on the form of wages paid over an 80-hour paid leave per employee, either:

      • At a cap of $511 per day per employee (or $5,110 over the full ten days) if the employee was sick or quarantining, or;
      • Two-thirds of an employee’s wages, at a cap of $200 per day per employee, if the employee was taking care of someone else who was quarantining, or if their child’s school or child care was closed due to COVID.

In addition, employers were obligated to provide employees with ten weeks of paid leave to take care of their children while school or child care was unavailable due to COVID, receiving an incentive tax credit equal to two-thirds of their employee’s wages, capped at $200 per day per employee, or a total of $10,000 per employee.

The tax credit was extended throughout 2021, but the requirement to provide paid leave was not. This means only businesses that continued to provide paid leave to their employees for COVID-related obligations were eligible for a tax credit. If you have not received your tax credit, you can file amended payroll tax forms to claim the tax credit and receive a refund for your business.

The Paid Leave Credit is not being extended into 2022.

Child Tax Credit

While not strictly relevant to small businesses tax deductions, the Child Tax Credit was relevant to millions of self-employed and working Americans with dependents, as it was slated to be extended into 2022 – remaining one of the only coronavirus tax relief offerings that might have made it into the new year.

As many as 35 million families across the US relied on the tax credit, with many using it for school supplies and childcare. With cases surging and a new variant looming on the horizon, news of Congress’ inability to extend the program has caused many lawmakers to try and figure out state-level solutions instead to help families retain an important safety net ahead of yet another wave of economic uncertainty. So far, seven states have their own implemented Child Tax Credit, with another nine states having seen proposals for one in the past two years.

While small business owners with dependents and other families might not see an expansion of the Child Tax Credit in 2022 – the jury is still out on whether Congress will be able to vote in a revised version of the Build Back Better bill next year – there are still other deductions and tax credits to take advantage of, both for individual taxpayers and small businesses working to survive the ongoing crisis.

Other Important Tax Relief Tips

Running a small business is a monumental task. Most small business owners are struggling to make ends meet, nowadays more than ever.

There’s payroll to worry about, increasing fuel costs, supplier rates, and unprecedented supply chain issues. Everything from lumber to server space is becoming more expensive, and there are a million balls to keep juggling in the air.

Why let one more worry pile up and cost you precious capital? Get in touch with a tax professional to help you minimize your business’s tax liability, from providing sensible and actionable tax credit information to tax return filing services down to advice on restructuring. Let Rush Tax Resolution help. Get in touch with us today and find out more.

What Happens If You Don’t File Taxes for 5 Years?

What Happens If You Don't File Taxes for 5 Years - Rush Tax Resolution

Failure to file taxes can lead you to hot water with the IRS, but what happens if you don’t file taxes for 5 years? 

If you’ve ever failed to file your taxes, you’re sure to have received a notice from the IRS detailing the penalty you have to pay as a result of your late filing. But have you ever wondered what happens if you forget (or fail) to file for multiple years?

Surprisingly, the answer might be nothing – at first, at least. The IRS generally isn’t fond of taxpayers who don’t pay their fair share or provide the required paperwork for the tax system to function. Tax returns are part of how the IRS cross references information across large populations to find red flags and reduce the tax gap.

But just because the IRS doesn’t come down hard on some taxpayers who haven’t filed for years doesn’t mean that there are no consequences at all – or that you can fly under the radar forever. The IRS doesn’t forget. But it can forgive, if you play your cards right.

 

The IRS Doesn’t Forget

It’s important to mention that the IRS does not necessarily need you to file anything to know what you’ve earned, at least roughly. The IRS uses information returns filed by employers, banks, and other institutions to determine what you owe in taxes, and it will receive that money either through withholding or your monthly payments.

You can (and should) make these payments even if you don’t file taxes for 5 years. If the IRS discovers that you’re earning elsewhere – through reports from the bank or returns filed by other people – their software can pick up on that discrepancy and will call it out as a red flag.

 

You May Have Had a Return Filed for You

If you fail to provide the IRS with the information they need to make the pieces fit together, they will file a substitute return for you based on the information they have. This means that you won’t have any deductions or tax refunds applied to the income the IRS will report for you. Think of it as a passive aggressive statement – because you aren’t filing, the IRS takes your paperwork, says “fine, we’ll do it for you”, and gives you just about the worst possible deal it can.

On top of that, your tax account will carry a penalty.

 

Understanding IRS Penalties

There are two major IRS penalties: a failure to pay penalty for any outstanding tax balance, and a failure to file penalty whenever a tax return is significantly overdue.

If you fail to file, the IRS gives you a flat penalty to start, and adds 5 percent of what your unpaid tax bill every month your return hasn’t been filed, culminating at a 25 percent maximum after five months.

Depending on how hefty your estimated tax bill is, the IRS will pursue collection actions against you. If you don’t file taxes for 5 years, expect collections to be reaching out.

 

Why You Should File Your Old Returns Anyway

Despite the IRS filing for you, these substitute tax returns still don’t count as the real thing. If you have a tax bill – and you do, because of the penalty and accumulated interest – you will eventually need to pay off that tax bill.

When you decide to do so, the IRS will usually not accept any payment plans or offers until your tax returns are in order. That means you will have to get your paperwork straight first, before you can wipe your debt.

 

Settling Your Debt with the IRS

Once you’re in the position to make things right, you will want to start by getting caught up as quickly as possible. Thankfully, if you work with tax professionals, this will not take too long.

Start with the most recent year and work your way backwards. You can file this year’s late return electronically via the IRS’ website, where you will also find all the information you will need to file returns you haven’t kept very good records on, via the IRS’s transcript records.

You can basically ask the IRS to send you the information they have on you, combine it with what you know or have left in your records, and create an accurate tax return for years you’ve missed. To do so, you will need to fill out Form 4506-T. Keep in mind that it can take well over a month for the IRS to finish processing your request.

As you work your way through your returns, you will be able to start negotiating a payment plan with the IRS. You can do so either in a single transaction, in a short period (via multiple lump sums), or monthly (until it is done). If your tax debt is quite large, you may have other options you can explore with a tax professional.

 

What Happens If You Don’t Pay?

Willfully ignoring your duty as a taxpayer theoretically can be a criminal offense. However, it’s more likely that if the IRS hasn’t done anything at this point, they will continue to let interest rack up on your tax account until they come knocking and demand payment – as well as the overdue tax returns.

If you refuse to pay, the IRS has multiple different ways of turning up the heat without threatening imprisonment. The first is through a tax lien. A federal tax lien effectively blocks you from accessing certain forms of financing by making the government itself the top priority creditor in line for your money. This applies to every asset and account in your name. This also means you cannot seek a secured loan or use anything you own as collateral for financing.

From there, the IRS can turn to tax levies as its next step. A tax levy is a physical claim of an asset or account, and everything therein, for the purpose of repaying your tax debt. The IRS cannot claim the home you live in, nor any assets you strictly need to survive, but they can take certain properties and clean out certain accounts.

Any action the IRS takes must first be announced via the mail. You will receive multiple different letters and notices as the IRS proceeds to place a lien and levy on your tax account and belongings. Only by repaying your debt, taking them to court, writing an appeal to the Independent Office of Appeals, or becoming Currently Not Collectible can you keep the IRS from levying further collection actions against you.

If you are worried about trouble with the IRS due to being behind on tax returns and tax payments, know that time is of the essence. If you don’t file taxes for 5 years, or any amount of time, get in touch with us today at Rush Tax Resolutions, and get your situation sorted out quickly.

Itemized vs. Standard Deductions: What’s Right for You?

Itemized vs. Standard Deductions - Rush Tax Resolution

When preparing your taxes, you likely look towards deductions, but when it comes to itemized vs. standard deductions, which one is right for you?

Out of the few ways you can reduce your income taxes each year, the only two you can rely on year after year are the standard deduction and itemized deduction.

While the amount of income tax you owe can be lowered by tax credits and education, investment, or healthcare deductions as well, every American taxpayer is entitled to standard or itemized deductions on their annual tax return. However, you can only pick one of the two.

Understanding how itemized vs. standard deductions work, how they’re calculated, and why you might consider one over the other can help you cut down on your taxes and save money.

 

Itemized vs. Standard Deductions: What Are They?

Tax deductions are applied to income before it is calculated for tax. This means that if you have a fixed deduction of $10,000, then you take your annual taxable income and slash $10,000 off of it before calculating your tax rate.

Additional tax deductions help drive your taxable income even lower, usually through certain medical expenses, student loan interest, and work-related deductions.

This is in contrast to a tax credit, which reduces the amount of tax you owe. While the difference seems semantic, it’s easier to think of it this way – tax deductions can play a role in determining your tax rate, while a tax credit is a flat number taken off your total owed taxes for the year. Tax deductions can reduce your tax liability, while credit can lead to a refund from the IRS if you don’t owe any tax.

Choosing between itemized vs. standard deductions is largely a matter of determining just how many itemized deductions you can reliably qualify for.

What this means is that the standard deduction is something you’re easily entitled to, while itemized deductions can raise red flags for the IRS if they seem implausible or if a tax return is simply using too many of them.

 

How the Standard Deduction Was Reworked

When determining itemized vs. standard deductions, we must understand what standard deductions include. The standard deduction is a set amount of money shaven off your total taxable income at the end of the year.

Your standard deduction is determined by your age and filing status. You can specify that you choose to claim the standard deduction on your income tax return—only taxpayers who decide to itemize need to fill out a Form 1040 Schedule A.

One of the many changes to the tax code made by the Tax Cuts and Jobs Act of 2017 includes an overhaul of standard and itemized deduction amounts. For example, the rates for the standard deduction in 2020 were:

      • $12,400 for single taxpayers/married individuals filing separately.
      • $28,650 for the head of the household filing status.
      • $24,800 for married couples filing jointly.
      • $24,800 for qualifying widow(er)s.

Taxpayers aged 65 and older, as well as blind taxpayers, receive a higher standard deduction.

 

The Pros and Cons of a Standard Deduction

Prior to the rework in 2017, many taxpayers were benefiting immensely from going for multiple itemized deductions rather than picking the standard deduction. This would result in more work but a better tax cut.

However, with the new amounts, many taxpayers (as many as 90 percent) are better off claiming the standard deduction rather than going through the trouble of listing their itemized deductions.

If you didn’t spend your own time going through your expenses to figure out your itemized deductions, chances are that you were paying a professional tax preparer to do so. Choosing the standard deduction instead can save you an average of over $100 in your tax prep bill.

Of course, there is still one significant consideration – you may be leaving money on the table. It’s worth bringing the idea up with your financial planner or tax preparation provider or personally going through your expenses for the year. If it was a particularly life-changing year – with medical issues, home office investments, charitable donations, and more – you may save more through itemized deductions.

 

How Itemized Deductions Work

When it comes to itemized vs. standard deductions, you will have more work when choosing an itemized approach. Form 1040 Schedule A presents you with a long list of itemized deductions that you may claim to reduce your tax liability. These include:

      • Medical and dental expenses.
      • Local taxes.
      • Interest on loans.
      • Gifts to charity.
      • Casualty and theft losses.
      • And other types of itemized deductions.

If you’ve had substantial costs or losses related to any of the above, you may rack up considerable itemized deductions. However, you need to take note of a few things before you switch from your standard deduction.

First, there are restrictions and limits on deductibility, especially for disaster-related losses, mortgage interest, and charitable donations. Second, for medical and dental deductions, only expenses that exceed 7.5 percent of your total adjusted gross income for the year can be deducted.

Furthermore, note that if you file jointly with your spouse, then choosing to itemize forces them to itemize as well.

 

The Pros and Cons of Itemized Deductions

The most significant difference between itemized vs. standard deductions is that the greater your expenses, the higher the likelihood that you can shield more of your wealth through itemized deductions than the standard deduction.

But that comes at a price, either in the form of more work for you or more work – and higher costs – for the tax preparation service. Not only do you need to keep an accurate paper trail for every major expense over the year, but you also need to keep in mind that there are restrictions, limits, and rules for every type of itemized deduction.

Finally, there’s the risk of an audit. The IRS is more likely to flag down and investigate an account with an unusual number of itemized deductions for the person’s respective age, filing status, occupation, location, and annual income. They use algorithms to spot inconsistencies and have the right to ask for paperwork backing up all of your itemized deductions for the last three years.

Note that the IRS does not audit very often, at a rate of much less than 1 percent for taxpayers earning less than $1 million.

It all boils down to which one brings you the best savings. If you aren’t sure between itemized vs. standard deductions, working with a tax preparer can help.

IRA vs. 401k vs. Roth: Your Guide to Retirement   

IRA vs. 401k vs. Roth - Rush Tax Resolution

An IRA, 401k, and Roth all have their respective pros and cons, but what is the difference of IRA vs. 401k vs. Roth? When it comes to retirement, it’s important to know what’s best for you.

Working towards a stable retirement is an incredibly difficult task, especially today. It takes a lot of careful planning, financial frugality, and long-term foresight. However, what any retirement plan needs the most is the right beginning. If you begin working and planning for a stable retirement in your 20s, chances are good that you will have the means to retire comfortably.

But how you decide to contribute to your retirement account (and seek contributions to it from other sources) will heavily affect the restrictions and limitations you will encounter while saving for retirement.

There are countless different ways to structure your retirement as you work towards the final years of your time in the labor force. But by far, the three most common ways to plan around retirement involve either an IRA, a Roth IRA, or a 401(k).

But, when it comes to IRA vs. 401k vs. Roth – what is the difference?

 

IRA vs. 401k vs. Roth

IRAs, or individual retirement accounts, are retirement accounts you can establish yourself to save up and grow your cash at a steady rate to fight inflation and have enough to settle down after retirement.

401(k), on the other hand, is an employer-offered retirement plan, one set up and financed by money withheld by your boss. A 401(k) is also known as a defined contribution plan.

A Roth IRA is an individual retirement account with the simple but important distinction that it allows you to withdraw your money tax-free. There are a few other important distinctions between a traditional IRA and a Roth IRA that would enable the latter to make these tax-free withdrawals.

There are a few other significant differences between an IRA vs. 401k vs. Roth account, as well as other similar retirement plans. Choosing the right one depends on individual circumstances and opportunities, tax considerations, financial difficulties that may lie ahead, financial responsibilities, and more.

 

What is an IRA?

An individual retirement account is a type of account you can open with a financial institution for the purpose of saving money over multiple decades to work towards a stable retirement. An IRA allows a person to enjoy tax-free growth on their account and deduct the contributions they make to their retirement account from their individual tax return.

Retirement accounts are more than just a shoebox under the bed. They are an investment account wherein you are given multiple investment options to grow your money at low risk, usually through certain funds, stocks, bonds, or property. These investments help you grow your retirement money and beat inflation, versus simply letting the cash sit in a savings account and barely grow.

While the money is eventually taxed when it comes out of the account at the beginning of your retirement, it will be taxed at the rate you qualify for during retirement, which tends to be lower than the rate you might have qualified for while still in the workforce.

In other words, traditional IRAs allow you to turn all of your financial contributions into tax-deferred earnings and lower the taxes you might be paying on those earnings when you finally withdraw them.

IRAs are not necessarily exclusive to other retirement plans. You can save up for both an IRA and put money into your 401(k). Of course, the more retirement plans you contribute money to, the less money you have for bills and living costs. Furthermore, there are other requirements to consider before you can start making your contributions.

 

What is a Roth IRA?

Roth IRA distinguishes itself from a regular or traditional IRA in that any contributions made to it are taxed first so that when you withdraw them, these contributions will be tax-free income. In other words, through a Roth IRA, you take care of the taxes upfront, so you don’t have to pay them down the road.

Furthermore, a Roth IRA allows you to let your potential earnings grow unimpeded by taxes. Even better, you can withdraw your contributions without penalties. One of the most significant differences between a Roth IRA and a traditional IRA is that early withdrawal penalties can be steep when investing in a traditional IRA.

In a traditional IRA, any withdrawals made before the age of 59 and a half incur both income taxes and a 10 percent penalty. You also have required minimum distributions (RMDs) that you must claim starting at age 72. A Roth IRA has neither an early withdrawal penalty nor any RMDs.

Both traditional and Roth IRAs have specific requirements before you can begin making contributions towards them.

 

What is a 401(k)?

While an IRA and a Roth IRA require you to make your contributions to your retirement account and decide between upfront tax benefits and tax benefits down the line, a 401(k) involves the employer in the equation.

401(k)s differentiate themselves from IRAs in that a portion of your wages is invested into the account and typically matched by your employer. The investment options for a 401(k) are limited in comparison to most IRAs. However, the gist is the same – put the money in an account, invest it conservatively, allow it to grow enough to avoid loss in value, and hopefully grow to a size that will support you in retirement.

The main differences aside from having multiple sources of contributions are that 401(k) plans have higher limits on contributions and may be easier to save with because the money is being directly withheld from your earnings and never reaches you to begin with, so you don’t need to actively keep yourself from spending what you earn.

You would think that this type of plan wouldn’t be available to self-employed workers, but it is.

solo 401(k) is an option for people looking for another opportunity to benefit from their business and work towards retirement, especially sole proprietors and independent consultants.

 

IRA vs. 401k vs. Roth IRA: Choosing Between Them

Aside from 401(k)s, IRAs, and Roth IRAs, there are SEPs403(k)s, and other retirement accounts. But when choosing between the three most popular options, you have to ask yourself which you can qualify for, whether you can get your employer to match contributions (not always offered), and whether you prefer tax-free retirement income or tax-deferred payments.

 

Working With a Financial Advisor

There are countless different factors that heavily weigh into deciding to invest in a retirement account. It’s difficult to recommend one over the other without taking individual factors into account.

You should consider working with a financial advisor or tax specialist when deciding what kind of retirement account to plan with in order to save up for your golden years. Your current income projected earnings and individual tax considerations all impact which retirement account best suits you.

Can Social Security be Garnished? 5 Steps If You’ve Received CP91  

Can Social Security be Garnished - Rush Tax Resolution

The future of social security is an uncertain one, but can social security be garnished? Scroll down to find out more about social security and Notice CP91.

Of the many notices and letters the IRS issues each year, Notice CP91 is one of the more serious notices. Receiving this notice from the IRS means that you’re severely behind on tax payments, and the IRS will resort to garnishing your social security benefits. What does this mean exactly? Let’s find out.

 

Understanding Notice CP91

The contents of Notice CP91 describe that the addressee has 30 days from the date of the notice before the IRS will garnish (claim) 15 percent of the social security benefits of the person to whom the notice is addressed.

Why would the IRS send you this notice? Generally, it’s because:

      • You owe the IRS back taxes that you haven’t paid, and you have received other notices warning you of this.
      • You haven’t contacted the IRS or worked out any concrete steps to tackle your back taxes.
      • You have missed previous deadlines for addressing your overdue tax balance.

Notice CP91 is one of several different “last resort” options the IRS can turn to if a taxpayer continues to leave their debt unpaid. It is signaling a levy, meaning the IRS is one step away from physically claiming a percentage of your benefits in order to pay your back taxes. The IRS has the power to levy or garnish other incomes, compensations, and assets.

For example, Notice CP504 is the Notice of Intent to Levy, which means the IRS will claim an account, property, or tax refund to cover your tax debt. When receiving a Notice CP91, the IRS will garnish or claim a portion of your social security benefits.

While this is one of the final notices the IRS will send you before claiming a portion of your benefits, you do have ways to combat it.

 

Can Social Security Be Garnished if I Ignore Notice CP91?

If you ignore Notice CP91, your social security can be garnished. The IRS will claim 15 percent of your social security benefits each month until your tax debt is paid.

Keep in mind that if you refuse to take measures to contact the IRS or reduce your debt otherwise, you will continue to accrue interest at the quarterly rate set by the IRS.

You can reduce the interest your tax debt will accrue and halt your levies by taking the appropriate measures now before the deadline strikes.

 

What Do I Do Now? 5 Simple Steps to Avoid Social Security Garnishment

The last thing you want to do is nothing at all. There are a few options available to you if you have received a Notice CP91 from the IRS. You can avoid social security being garnished. Let’s go over them.

Step 1: Get Professional Help

Working with a tax professional can help you cut through the usual channels and help you navigate the bureaucracy of the IRS as quickly as possible. A tax professional will also be able to help you work through your taxes and financial details to identify the best possible way to tackle your tax debt, avoid liens and levies, and dodge further penalties and interest.

If you believe that your tax debt is a mistake or that the IRS has sent you the wrong notice and have the necessary evidence to back it up, a tax professional can also help represent you when working through the appeals process.

Step 2: Appeals

There are multiple ways to appeal a decision to levy a tax account, including through the IRS Independent Office of Appeals and the US Tax Court. You will want professional legal representation in either case and solid evidence.

The IRS is made up of humans, after all, and humans make mistakes. If the IRS sent you the wrong notice or erroneously applied a tax debt to your account, you can quickly resolve the issue through a tax professional. A tax professional can also help you relieve liens and levies while your case is being processed.

Step 3: Repayment

If your tax debt to the IRS is no mistake, then you will want to take the appropriate steps to resolve the debt as soon as possible – preferably before the deadline on your Notice CP91.

There are three common ways to do so. The first is through a payment plan. The IRS offers three payment plans:

      • Pay now
      • Pay in several lump sums (over the course of 120 days)
      • Pay in monthly installments (over the course of more than 120 days)

Each payment plan has its advantages and disadvantages, as well as different setup fees depending on the chosen payment plan and the way you set it up (setting it up online is often the cheapest approach).

Entering into a payment plan with the IRS can delay the collection process, meaning the IRS will not issue a levy on your account (as long as you aren’t late on your payments). Payment plans typically also reduce the interest accrued on your tax debt after the first few payments.

Step 4: Offer in Compromise

If you cannot afford to make monthly payments to dissolve your tax debt completely, don’t worry. You can argue for an offer in compromise. This is an option the IRS provides to low-income taxpayers who don’t have any financial means to pay their debt in time (within the statute of limitations) without meeting financial hardship.

The IRS will review your offer in compromise (OIC) alongside your financial information to determine whether your tax account is a good fit for an OIC and whether your proposed offer meets their expectations. If your offer is lowballing what you are capable of paying each month, for example, they are more likely to reject it.

Your best bet is to work with a tax professional to formulate your offer. They will help you create an offer that the IRS is more likely to accept. You can also use the IRS’s pre-qualifier tool to get a better idea of whether they might take your offer.

Note that neither a tax professional nor the IRS’s pre-qualifier tool can guarantee that your offer will be accepted.

Step 5: Halt the Collections Process

The last resort if you cannot shoulder payments to the IRS at the moment is to temporarily halt all collection actions. This option can keep the IRS from issuing a levy or even stop a levy while it’s active.

To qualify, you must prove that the IRS’s collection actions are causing financial hardship. The IRS will periodically check-in to see if your financial situation has improved before continuing collection actions.

 

Final Thoughts

So, can social security  be garnished? The answer is yes – the IRS can garnish social security. But there are ways to avoid it and prevent further actions against you.

Even if you are currently being levied, it’s important to remember that not all hope is lost. Work with a tax professional today to get in touch with the IRS, formulate a payment plan you can shoulder, and get back on the government’s good side.

What is the Penalty for Paying Taxes Late? Oct. Deadline Approaching!

What is the Penalty for Paying Taxes Late_ Oct. Deadline Approaching - Rush Tax Resolution

As the October 2021 tax deadline approaches, it is essential that you be prepared, but what is the penalty for paying taxes late?

The IRS extended the deadline for filing 2020 tax returns to October 15, 2021, rather than the usual national Tax Day of April 15. Taxpayers who have not yet filed can still do so, even electronically. There are a few exceptions to the rule, namely:

    • American taxpayers currently serving as members of the military and are in a combat zone have up to 180 days after they leave the combat zone to file and pay their due taxes before penalties and interest accrue.
    • Taxpayers who are currently in a declared disaster area with valid extensions are also currently exempt from the October 15 deadline.

All other taxpayers who have not yet filed their tax returns for 2020 may be facing penalties if they miss the October 15 deadline.

 

What Is the Penalty for Paying Taxes Late After October 15th?

There are two aspects to the penalty for paying taxes late: the failure to file penalty and the failure to pay penalty.

The penalties or filing and paying taxes late are some of the steepest the IRS can levy at you. Your failure to file penalty is 5 percent of unpaid taxes, and an additional 5 percent for every month the tax return remains due, for a maximum of 25 percent of unpaid taxes.

Your failure to pay penalty is 0.5 percent of unpaid taxes, and an additional 0.5 percent for every month the tax return remains due, for a maximum of 25 percent of unpaid taxes.

When both penalties are applied together, they are initially combined into a 5 percent monthly penalty (4.5 percent failure to file penalty and a 0.5 percent failure to pay penalty). However, both add up to a maximum of 25 percent each, first after five months (due to failure to file), and then after another 45 months (due to failure to pay).

Applying for a payment plan can reduce your penalties. Failing to file for ten days or less results in a partial month or 1 percent penalty. Note that you can provide a reasonable cause for paying and filing late, and if the IRS deems it reasonable enough, you can avoid a penalty for paying taxes late.

 

Get a Professional Tax Filer

If you haven’t gotten around to filing your taxes yet, then getting in contact with a tax professional is crucial. You only have a few days until the October deadline, and every moment counts. Know what it takes to qualify as a professional tax preparer and choose your tax professional accordingly.

 

Scheduling a Payment Plan Today

If you have received a penalty for paying taxes late, it’s important to schedule a payment plan today. For example, if you currently owe the IRS taxes or have haven’t made your federal tax payments, you can do so online either via:

    • IRS Direct Pay, which lets you pay from a checking or savings account for free.
    • A credit card or debit card via the IRS’s payment processor (charges a fee).
    • The Electronic Federal Tax Payment System.
    • The IRS2Go app, which allows you to pay via your phone using a credit card, debit card, or Direct pay.
    • Through a tax preparer or online tax preparation software.
    • Other electronic payment options.

 

What Do You Owe the IRS?

If you aren’t sure what your standing is with the federal government, you can find out by reviewing your tax account via the Internet. Head to the IRS’ login portal and use your credentials to get an overview of the information you might need when preparing your own tax return to file before the October deadline, including:

    • Your AGI. This is your adjusted gross income, an important number for calculating your income tax.
    • Your EIP amounts. These are the economic impact payments the government has sent you. If you did not receive the full amounts of both economic impact payments (i.e. stimulus checks), you can claim the Recovery Rebate Credit on your 2020 return. This is a tax credit, meaning it reduces the amount of tax you owe the government.
    • Your estimated tax amounts. These are a total of the estimated tax payments you have already made to the government as a self-employed individual, as well as any refunds applied.
    • Your current tax balance. This is how you find out whether or not you currently owe the IRS any money.
    • Any outstanding notices. If you have been sent physical notices via mail, you can review them digitally through your online tax account.
    • Payment history and upcoming or pending payments. If you are currently in a payment plan with the IRS to pay off your tax debt, you can also review when your next payment is due, regardless of whether your plan is manual or automatic.
    • And more.

 

What Happens if You Don’t Pay?

The IRS can pursue your tax account in multiple different ways if you fail to file and/or pay your taxes. Any penalties and interest accrue alongside any tax debt the IRS calculates from missing estimated taxes and unpaid or unmentioned taxes, after tax credits.

If the IRS discovers that you still owe taxes after using up your credit, they will send you a notice alongside a date for your tax estimation, which officially dates your tax debt. At this point, your debt will begin to accrue interest and additional penalties, until maximum penalties are reached (your debt may continue to grow via interest or additional missed payments).

 

What Happens Next?

As your debt to the IRS grows, so does the pressure they can apply to you. One of the first steps the government takes to ensure its claim is a tax lien, which prioritizes the government’s interest in your assets, properties, and accounts above that of other creditors. While this is not a forcible claim of anything you own, it does limit your ability to seek financing or pay off other loans and debts until you deal with your taxes.

If the debt continues to go unpaid, the IRS can resort to tax levies, physically claiming individual properties or assets, cleaning out accounts, or taking a portion of your wages and compensations in the form of wage garnishment, until your debt is forcibly paid.

The penalty for paying taxes late can be severe. However, liens, levies, and other collection actions can be delayed, avoided, and resolved through a payment plan with the IRS, and other options. You can file as currently not collectible to delay collection actions if you are financially struggling or work on an offer in compromise to reduce your total tax debt. Always discuss your situation with a tax professional before making any rash decisions, especially if you are currently in tax debt.

Skip to content