1. Forgiveness of Credit Card Debt – Taxpayers who have negotiated with their credit card companies to lower their balances may actually be creating a situation where they owe taxes. Let’s say you negotiated your $20,000 balance in credit card debt down to $4000? That’s the same as if someone gave you a $16,000 gift - and that $16,000 is reportable income. The taxpayer is likely to end up with a surprise tax bill they did not put money aside for. This “forgiveness of debt” is not the same if you declare bankruptcy. This is an important fact to consider when deciding to file bankruptcy or trying to work out deals with credit card companies.
2. Getting Paid in Cash? – Cash payments often present the question of whether or not to declare them. It’s not worth the risk and that there are other consequences too. There is a temptation not to report cash payments, but the trail you are leaving the IRS may be more obvious than you think. Then, guess what happens when you need to support your income in order to get a loan? You can’t do it! The days of no-doc loans are over and will never be coming back.
3. Over-claiming dependents – Boomerang children may not be considered to be dependents for income tax purposes. Just because your adult child may have moved back in with you due to loss of a job does not automatically mean you can claim them as dependents. Make sure to check that you are paying for more than 50 percent of their support. Also, make sure no one else is claiming them as dependents.
4. Leaving money of the table – Don’t let the fear of an IRS audit keep you from taking legitimate deductions. Even in this poor economy, many folks are still deathly afraid of an audit, so they refuse to take legitimate deductions, thinking that it will help them in the eyes of the IRS. The fact is auditors assume non-compliance. If you were chosen for an audit that may very well be the case. But, as long as your books are in order and you hire a IRS tax lawyer or CPA to represent you the second you get that first notice from the IRS, an audit really doesn't have to be all that bad.
5. Part of unemployment compensation is taxable -- Collecting unemployment benefits often causes problems with under-withholding so don’t fall into this trap.
6. Early withdrawal on IRAs – If circumstances have caused you to take an early withdraw from your IRA, you can expect to pay penalties. If you don’t pay attention to this you will likely be put into a corner facing an IRS with incredible collection powers, like a levy, tax lien or wage garnishment.
7. Temptation to Use Disreputable Preparer - Don’t fall victim to a preparer's promise of a refund that sounds too good to be true. This can be very tempting when you are desperate for cash, but it’s not worth it. This type of preparer should be avoided at all costs. By using their services, you will create a bigger headache for yourself than you ever could have imagined. You are basically guaranteeing yourself a tax problem and visit with the IRS.
8. Self Serving “Mistakes” – If you do your own taxes and you realize you are going to owe money because maybe you didn’t have enough taxes withheld, resist the urge to “fudge” on your returns to make it look like you are due a refund. This is not a good idea. The IRS will eventually figure it out, and then will be attacking you like pit bull, maybe even garnishing your wages, THEN you will need IRS tax debt help!
9. Self-employed individuals making inadequate estimated payments - As the economy makes it more difficult for self-employed business owners, they may very well be tempted to make inadequate estimated payments on their taxes. When your bottom line is squeezed, there is a temptation to pay the IRS last, if at all. We certainly understand this – most people will pay for groceries or a mortgage payment before they pay the IRS. But, if you do not pay the IRS on time or do not keep current with those payments, the IRS will levy all your bank accounts to $0; and send levies to your accounts receivable so that you do not see a dime.
10. Employers Failing to Send in Payroll Tax Deposits -- In a down economy, many employers will stop sending in their 941 payroll tax deposits while they are waiting for slow receivables. This is a dangerous game. A better idea is to get a loan against receivables, or, even as difficult as it may be emotionally, to start laying off employees. Layoffs may be temporary, but failing to make tax deposits may create a hole that an employer may never be able to dig out of. This could result in the Trust Fund Recovery Penalty Tax being assessed against you
For more information on IRS tax Debt or to order a special IRS report click here.
