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Do I Need Tax Representation?

Bad things happen to everyone especially if they are self-employed and run their own small business. When financial problems grow beyond control, there are typically significant tax consequences. The best strategy is to hire a tax attorney, certified public accountant (CPA), or authorized tax advisor called enrolled agents (EA), to represent you in resolving tax issues you might have with the Internal Revenue Service (IRS) or other tax authorities. Details regarding standards and practices are available in IRS Circular 230. It is especially important to have a practiced tax professional handle tax disputes. Instead of causing more problems for yourself, let a third party present your side of a disputed issue. Select a tax representative that has experience dealing with your specific issues. A tax professional provides assistance by “removing” you from the stress of the immediate situation and presenting your “case” for you directly to the IRS. Choose a tax professionals that has practiced dealing directly with the IRS. They know all the legal and tax technicalities that could save you money. Regardless of how you feel or how serious the matter is, both you and the IRS want to resolve the dispute by finding a mutually agreeable solution. If you have received an inquiry regarding how you filed a return, an audit notice, or owe taxes to any tax authority, you need tax representation as soon as possible. Under many circumstances, it is better to NOT contact the tax authority on your own.

A tax professional is a representative who will focuses on successfully bringing about a fair solution to your tax issue. You don’t have to be a large corporation to need tax representation. In fact, now more the ever, individual taxpayers are best advised to hire tax professionals provide a resolution to their tax problems. Disputes can range from the simplest of late fees to IRS seizures, amendments, un-filed tax returns, wage garnishments, payroll tax problems, and especially IRS audits. Tax representation to satisfactorily resolve liens and levies is also important. Even though hiring a tax professional may seem excessive, you might actually save far more through representation by a specialist. Talking to the IRS yourself is not a good idea. Any tax authority is dedicated to collecting revenue that they believe you owe them; they will assume an adversarial role in all negotiations. A tax professional alternatively will focus on reaching a fair agreement that includes the best solution for you,

If you are in a complicated legal situation, consider retaining an attorney. A tax attorney who is also a practicing Certified Public Accountant is, of course, an ideal combination but obviously more expensive. A CPA or EA is equally qualified to handle disputes including those that must be resolved in tax court. Since lawyers are typically more expensive, a first step is to compare costs of attorney, CPA, and EA for their counsel. Attorneys charge hundreds dollars per hour and may not be immediately available to handle your case. A CPA or EA will typically charge less even if they represent you in court. If you need legal counsel, contact the American Bar Association or consult the Martindale-Hubble Law Directory. If you need referrals for CPAs or EAs, use a search engine to find the state-specific professional societies for CPAs or EAs. Alternatively, contact the American Institute of Certified Public Accountants or National Association of Enrolled Agents.

Am I done with taxes after April 15?

You’ve filed your taxes for last year. You won’t have to worry about this stuff again for at least another 10 months, right? WRONG! In fact, now is the perfect time to review your tax information for 2009. Whether you paid a tax balance due or are receiving a refund, I hope your tax advisor explained all the good AND bad financial decisions you made last year and how they affected your federal tax return. Having worked these first 3 months of the new tax year, it is now a perfect time to strategize the management of your taxes that will be due next April. The world has changed dramatically over the last two years; tax management, as well as credit and cash management, is now more than ever before, a major part of your financial life.

Running your life is like running a home-based business. Tax strategies are a part of good financial planning and are necessary in order to maximize disposable income throughout the year AND minimize taxes due by next April 15. Similarly, careful planning and review of payroll withholdings or, where appropriate, quarterly estimated tax payments, in April, June, September, and next January are very useful exercises in taking control of your finances, and your life. Unless you SPECIFICALLY plan to over-withhold estimated income taxes during the year, projecting what your taxable income will be WITH adjustments for tax-significant financial decisions, might offer greater rewards than you think. A short list includes contributions toward education/health/retirement plans, distributions from pensions/annuities, work-related moving expenses, business expenses related to trade or business, and, if appropriate, one-half any self-employment tax. Changes in your filing status and how many personal exemptions will be claimed as of December 31 are also important considerations.

A quick rule-of-thumb is to understand WHY your federal tax return has a tax balance owed or a refund due. Did you plan for this result? One approach to tax planning is to have all your payroll withholdings and/or estimated quarterly payments equal calculated taxes you owe (your tax liability) on your federal return. Excluding special one-time situations like buying your first house or large IRA distributions and special refundable credits like Earned Income and Child Tax Credits, a large refund or tax balance due are tax outcomes you need to carefully investigate and, especially if unexpected, adjust for as part of your tax strategies in this current tax year.


If you don’t pay the IRS on time…

Missing or falling behind in tax payments to the IRS is NOT a good situation. There are several forms of correspondence the IRS will send you. Among these notices, CP 11, and related ones like 11a/14/22a/22e/23 all communicate a balance due. CP 501 and CP 503 are reminders a balance is due; CP 504 is a final notice a balance is due! You are charged interest on taxes not paid by appropriate due dates REGARDLESS of whether or not you were granted an extension of time to file your return. Interest rates have ranged from 7 percent to 10 percent since 1994. Interest calculations include penalties imposed for failure to file and/or negligence, fraud, etc and are charged from the due date of the return, including extensions.

The IRS also penalizes you if you file your federal tax return late. If you don’t file your personal return by April 15 (or an extended due date), the penalty is usually 5 percent of the amount due for each month or part of a month your return is late, unless you have a reasonable explanation. Paying your taxes late will incur a penalty too. Payment methods through the Internet or by phone through the Electronic Tax Payment System (EFTPS) supported by live Customer Service representatives are available 24×7. A penalty of 0.5 percent (up to but not in excess of 25 percent) of the unpaid amount for each month or part of a month the tax is not paid is typically imposed. You can make estimated payments weekly, biweekly, and monthly. If however, you are late paying ANY of the four quarterly estimated payments, you may still be charged a penalty even if your final return shows a refund due. Penalties, in addition to the interest charged for late payments, are applied to any unpaid tax on the return.

If you believe you can justify filing late (and not having requested an extension prior to April 15), write a personal statement and attach it to your return. In addition, Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts should accompany any waiver requests. Whether or not your explanation is accepted, the penalty usually is NOT more than 25 percent of the tax due. If you file your federal return more than 60 days beyond April 15 (say after July 15), the minimum penalty will be the smaller of $100 or the amount of any tax you owe.

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