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Tax Day:  Filing tax returns?  Owe money to IRS or State of California or other States?  Help is Available

Editor’s Note:  today is tax day, the last day to file with IRS your personal income tax returns (and State returns).  If you can’t pay what you owe in full, here are some options for you.  Note this is a repeat of my post of October 12, 2012, entitled “Tax Deadline is October 15, 2012:  Be ready – can’t file or pay?  There are options, . . . ”

As we know, the deadline to file your individual tax return is Monday, October 15.  You don’t have to be a mystic or Carnac the Magnificent to predict the date.  And there certainly is no need to stress over the event, nor engage in widespread panic.  Some contemplative reflection is needed, and a bit of humor.  You shouldn’t blame your troubles on the staff, or your secretary or assistant, because that excuse doesn’t work.  It’s time to kiss your spouse, smile and walk the dog, and play it forward.  It is not a battle you are about to engage in with the IRS; rather, it is a process.  Fortunately, there are several options available.

By the way, make sure if you “paper file” your tax return, you do so from the U.S. Post Office, certified mail, return receipt requested.  It is proof that you filed.

Background:  October 15 is the tax deadline for millions of individual taxpayers who took the sixth month extension earlier this year to file their 2011 tax returns.  An estimated 1.6 million of those taxpayers are in California, including about 140,000 in Orange County.  Here are some things they might want to keep in mind while filing:

1.  Benefits still available

First, many of the benefits taxpayers can could have used if they filed by April 15 are still available.  For example, IRS e-file with direct deposit for refunds are easy and convenient.  Also, taxpayers may want to look into the IRS Free File Program which allows them to file their federal tax return for free if their income is $57,000 or less.

The Free File Fillable Forms feature is available with no income restriction, but it’s for users who are familiar with tax forms, such as the Form 1040, because there is no software support.

2.  Take all available deductions and credits

Assuming taxpayers qualify, they should take advantage of all available tax deductions and credits, such as the Earned Income Tax Credit, for low to moderate income workers and families.  The IRS on-line EITC Assist feature will allow taxpayers to check their eligibility.  Likewise, there are other programs, such as the Saver’s Credit, Child & Dependent Care Credit, and the American Opportunity Tax Credit.

3.  Payment options – first, file the tax return

Taxpayers should “file” their tax returns, even if they owe money to the IRS.  If you can’t pay the full amount due, pay what you can and let the IRS know.  This may help to avoid the so-called “late filing penalty” which is normally 5 percent per month, up to a maximum of 25%, on the tax and unpaid balance.  Interest is due from the due date of the tax return (April 15).

4.  Pay online or by phone

There are several options, and here is the link to those options.  First, taxpayers can pay online or by phone through the Electronic Federal Tax Payment System, by an electronic funds withdrawal or with a credit or debit card.  There is no IRS fee for any of these services, but private sector card processors charge a convenience fee if you make a payment with a credit card or debit card.

5.  Owe $50,000 or less – Online Payment Agreement is available

Taxpayers can set up installment agreements to pay IRS, and here is the link.  If a taxpayer owes $50,000 or less (tax, penalties and interest), check out the Online Payment Agreement to set up a monthly payment for up to six years, or to request a short term extension to pay.  Note that you can use this option “proactively” – – i.e., even if you haven’t received a “balance due” notice from the IRS.  Taxpayers will have to complete and mail Form 9465-FS, Installment Agreement Request (PDF). If you owe more than $50,000, you will also need to complete Form 433-F, Collection Information Statement (PDF).

6.  Offer in Compromise

Depending upon your circumstances, taxpayers may qualify for an Offer in Compromise.  We have recently blogged on the updates or revisions to the Offer in Compromise program, in “Let’s Make a Deal!!  Time to Revisit & Log into the IRS Offer in Compromise Program.”

Basically, the OIC an agreement between the taxpayer and the IRS that settles the taxpayer’s liabilities for less than the full amount owed.  Generally, an OIC will not be accepted if the IRS believes the liability can be fully paid.  The IRS looks at the taxpayer’s assets and net disposable income in determining ability to pay.

7.  Suspension of collection

Many taxpayers suffer from loss of their jobs, homes, etc.  In those cases, the IRS will frequently “suspend” collection against the taxpayers until they can get back to work, settled, etc.  The reason is obvious – – a taxpayer who has limited or no income is not able to pay IRS and thus, on hardship grounds, the IRS will  temporarily suspend collection.

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Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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