| Tax Problems
What are IRS Payroll Taxes?
The IRS requires business owners with employees to withhold Federal Income Tax, Social Security and Medicare taxes from its employees’ wages. The amount withheld depends on the employee’s Form W-4.
These IRS Payroll Taxes must be paid on a quarterly basis: March, June, September, and December. There are certain circumstances, however, that allow some small business owners to file these taxes on an annual basis. The IRS will accept deposits made electronically or by taking the deposit and required forms to a Federal Reserve Bank or other authorized financial institution. The IRS Makes the decision as to how often deposits are to be made, and these requirements are updated on a yearly basis and are based on the business’ annual payroll.
If you owe back IRS Payroll Taxes, the penalties that can be assessed to a liability can drastically increase the amount owed in a very short period of time. And failing to make timely deposits is a large portion of these penalties.
Also, if the IRS determines the business cannot pay the past due taxes, they will focus their attention on any individuals they deem responsible.
What is a levy/lien/garnishment?
If you owe back taxes, the IRS can and will put a levy on any and all of your bank accounts. And when a levy is issued, the bank is legally obligated to immediately freeze those accounts and hold those funds for 21 days, which gives the taxpayer time to resolve the debt. If the debt is not resolved in those 21 days, the bank must send those funds to the IRS.
Another thing the IRS can and will do is file a Federal Tax Lien, marking the IRS’ priority on a taxpayer’s real estate and personal property again all other creditors. The IRS can also seize and sell a taxpayer’s personal property, such as a car, boat or even a house.
The IRS will release a lien when the debt is fully satisfied. A lien can also be withdrawn under certain special circumstances. A taxpayer can also appeal the filing of a Federal Tax Lien if certain circumstances apply.
Lastly, the IRS can and will garnish a taxpayer’s wages. The IRS simply notifies the taxpayer’s employer about the tax debt, and the employer is then legally obligated to send a significant portion of each of the taxpayer’s paychecks directly to the IRS.
The actual dollar amount that gets sent to the IRS depends on the taxpayer’s filing status, number of exemptions and how often the taxpayer gets paid. For example, in 2008, if the taxpayer was single, claimed one exemption and got paid biweekly, the IRS could have taken all but $344.23 out of each paycheck. If the taxpayer was married and filed a joint return, claimed three exemptions and got paid weekly, the IRS could have left the taxpayer with just $411.54 from each paycheck.
What is an IRS Audit?
An IRS audit or examination is when the IRS wants to take a second, closer look at one or more tax returns. The IRS can choose to audit an entire return or just a portion of it, such as expenses claimed for meals, entertainment or travel.
Traditionally, the majority of IRS audits are done via correspondence. In other words, most IRS audits are in the form of letters asking for explanations of various tax items on a tax return or requesting supporting documentation. In fact, on average only about one-third of all IRS audits are done on a face-to-face basis with an actual IRS revenue agent, tax compliance officer, or tax examiner.
More often than not, an IRS audit of a tax return will result in changes to the return. Whether these changes are good or bad for the taxpayer depends on each individual situation. For instance, in Fiscal Year 2007, the no-change rate, or the number of returns accepted as filed after an audit, was 16 percent for correspondence audits and 12 percent for returns audited by revenue agents, tax compliance officers or tax examiners.
As for the likelihood of a tax return being audited, keep this in mind. Only about one percent of all individual returns filed actually receives an IRS audit.
What to know if you haven’t filed a tax return for a previous year.
Whether you didn’t think you had to file a Federal tax return or you simply forgot, the fact is, not filing a return can be very costly. You may end up owing the IRS more because of penalties and interest. Or you may miss out on a valuable refund.
If you owe the IRS taxes and you delay filing your return, the result may be a “failure to file” or “late filing” penalty, as well as any applicable interest charges. The longer you wait to file your return, the bigger these charges are going to grow.
A twist is that there is no “failure to file” penalty if you are actually due a refund. However, you will not receive a refund without filing a tax return. And, the other twist is that the deadline for claiming a refund is three years after the return due date. For example, the last day for claiming a refund for a 2004 tax return would be April 15, 2008.
Also, any individual who is entitled to any type of credit, such as the Earned Income Tax Credit, must file a return in order to claim the credit, even if they are not required to file a return.
Whether or not you need to file a tax return depends on your income, filing status, age and type of income you receive.
If you would like more information on how to file a past tax return or whether you are required to file a tax return or not, you can visit www.irs.gov.
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