Virginia Beach, VA (PRWEB) January 23, 2012
As the economic malaise drags on for many, there is some good news for those who file taxes on time and communicate with the IRS, even if they can’t pay by the tax deadline. In addition to paying taxes through the installment payment plan, there may be other options such as the Offer in Compromise. The IRS has reacted to the economic times by helping taxpayers and businesses with a “Fresh Start” program that increases the lien thresholds for qualifying taxpayers and businesses. Liberty Tax urges those who have experienced a cut in their income to plan ahead on what the next step can be if you know you will have a tax liability that you can’t pay.
A tax liability may result in the IRS placing a lien on certain property owned by a taxpayer or business. Those in this position may be able to apply for the increase in the lien threshold from $5,000 to $10,000 through the IRS’s “Fresh Start” program. By entering into a direct debit installment agreement, qualifying businesses or taxpayers owing up to $25,000 can pay their tax liability down to $10,000 and then request a lien withdrawal by filing Form 12277, Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.
“The first step to showing your intent to pay taxes owned may be requesting permission to make monthly installment payments by filing an installment agreement form with your tax return. If you are not currently on an IRS installment plan, complete Form 9465, Installment Agreement Request, and attach it to the return. To limit penalty and interest charges, the taxpayer should pay as much of the tax due as possible when sending in their return,” suggested John Hewitt, CEO of Liberty Tax Service.
In today’s recovering economy, the IRS is reacting to taxpayers who are suffering financially due to job losses and other economic hardships. Some financially distressed taxpayers may quality for an Offer in Compromise. Under an OIC agreement, the IRS may agree to settle the taxpayer’s liability for less than the full amount of taxes owed. The IRS is not likely to approve an OIC if there’s evidence that the taxpayer could pay the full amount through the installment plan or another method. The IRS measures the “reasonable collection potential” (RCP) for payback by considering the value of the taxpayer’s assets including property, cars, other accounts and anticipated future income. A taxpayer can request consideration for an OIC by filling out Form 656, Offer in Compromise, or Form 656L, Offer in Compromise (Doubt as to Liability) and submit it with their tax forms.
Those who have been downsized and have been seeking employment should keep in mind that employment compensation is considered taxable income, but reduced earned income for the year 2011 may mean that the taxpayer might qualify for the Earned Income Credit. Another possible tax credit could be claiming the tax credit for child and dependent care expenses paid when looking for work. This is accomplished by filing Form 2441, Child and Dependent Care Expenses with the tax return.
The tough project of looking for employment may provide a tax break for job seekers who can itemize. Documenting the costs of a job search may deliver a tax break whether it results in a new position or not. This applies for persons looking for a change within their current profession. Job search expenses may be deductible when, totaled with employee expenses and other miscellaneous deductions, they exceed 2% of adjusted gross income. These are reported on Schedule A Itemized Deductions which is filed with Form 1040. The IRS allows the following job-hunting expenses:
- Employment and out placement agency fees
- Costs of resume printing and mailing resumes
- Legal fees related to doing and keeping your job
- Some travel expenses to and from job interviews
There may be other job expenses due to layoffs. If a taxpayer incurs legal expenses to fight a non-compete clause, these expenses may be claimed as a job-related expense.
Homeowners experiencing “short sales” and foreclosures will get an extended break for “debt-forgiveness” tax consequences. Instead of treating cancellation of debt as taxable income on the foreclosure of a principle home, no taxes will be levied on discharges of indebtedness of up to $2 million dollars for married taxpayers filing jointly and of up to $1 million dollars for a married taxpayer filing a separate return through tax year 2012.
About Liberty Tax Service
Liberty Tax Service (http://www.libertytax.com) is the fastest-growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 9,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service. Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.
Representatives of Liberty Tax Service are available to discuss tax issues and to make presentations to local groups who might be interested in learning more.
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