Income Tax Advice from the Experts

Income Tax Hacks – How to Save Time, Money & Trouble
Welcome to a webinar no one is really excited to attend. I mean, it’s about taxes, right? Well, in this case, we promise it’ll be worth your time – because we’re going to talk about practical and proven tax tips, and we’re gonna do it in plain English, and in less time than it takes to eat lunch.
Taxes are boring and confusing
The first thing you need to know is, you’re not alone in thinking taxes are both confusing and boring. In fact, the only surprising statistic we’ve seen is that slightly less than half of all Americans think filing taxes is stressful. We thought that number would be much much higher.
The IRS is not your enemy
So let’s begin with some psychology before we dive into more numbers. We need to get this out of the way and we need to do it right now. The IRS isn’t staffed by heartless government employees. The IRS doesn’t get any joy from upsetting you. In fact, the IRS wants to help you. Now I know that sounds contradictory to everything you’ve ever heard, but the truth is the IRS is just confusing and that leads to misconceptions. So let’s unwind those right now.
IRS: Incomprehensible, Robotic, Standoffish?
You’ve probably heard of IRS forms with names like W2 and 1040. But do you know just how many forms the IRS has? That’s right 800 of them. The IRS is one of the most complex government agencies and it has one of its toughest jobs. Accurately collecting taxes from individuals and businesses isn’t easy. So when you deal with the IRS it’s just one person, it can be both just depressing okay and daunting. But it doesn’t have to be.
Well-known but little-understood forms…
The IRS loves all numbers and it adores the letter W. But what’s all that mean? Once you know what the forms are for, you can get a better sense of how the entire income tax process works. It’s a lot less intimidating when you understand the reasons behind the numbers and letters. So lets start with the small numbers and just work our way up.
W2
No one likes paperwork. But this is the best IRS form. Why? Because its sole purpose is to show you how much you earned in the previous calendar year. It also shows how much tax was withheld. Which lowers your tax bill or nabs your refund. We’ll talk more about withholding in a moment. But just remember, a W2. That’s a happy form.
W4
What’s the W4? It’s the form you’ll fill out so you can get a W2 the next year. Basically, a W4 is what you need when you start a full-time job. It lets your employer know how much you want withheld from your paycheck. You can also use it to adjust your withholdings throughout the year and I know I just mentioned withholding again but I promise you we’ll get to that word shortly.
W9
A W9 is kind of the opposite of a W4. While a W4 is what you fill out for full-time work a W9 is what you fill out for freelance assignments or a side gig. It tells the IRS how much you’re making as an independent contractor. If you make more than six hundred dollars a year from one employer you know you need to fill out a W9. Less than that you don’t need to declare that income at all it’s too small of an amount for the IRS to worry about.
Four important numbers: 1099
A 1099 is the form you get back from the employer who paid you as an independent contractor. It notes exactly how much you earned on that side gig. So when you file your taxes, you might be sending a W2 with your full-time income and a 1099 with your freelance income. Depending on your withholding – yup, there’s that word again – you might have to pay something. Or you might be getting a refund.
OK, what is withholding?
Now let’s define withholding. Whenever you get paid, your employer removes or withholds a certain amount of money from your paycheck. This withholding covers some or all of your taxes. Why do that? Well, otherwise you’d owe thousands of dollars on April 15th and not many of us are organized enough to save those thousands all year long and pay them all at once. So the law says, employers in every state must withhold money for federal income taxes. Some states and even cities also require tax withholding.
How withholding works
Here’s the tricky part of withholding: It’s not user-friendly. Sure, it uses simple numbers, from one through four. But it can get real confusing real fast when you try to figure out just what you should declare. Your income and some other factors might give you the opportunity to add additional allowances. You might want to consult a tax pro for this, because they can help you achieve the sweet spot: no refund, no tax bill.
Why tax refunds are bad!
Here’s the thing about withholding: Everyone loves getting tax refund checks, even though that’s not ideal. Steve Rhode, a longtime personal finance expert, laments that many Americans use tax refunds for what he calls “forced savings accounts.” In other words, since we have trouble saving money, we let the IRS do it for us. Problem is, the IRS doesn’t pay us interest. It keeps it. So all tax experts say the best thing to do is keep your refund small and then save your own money through the year, maybe earning a few bucks in interest in a savings account – or even investing it in a retirement account where it can make real money. But why let the government hold onto your money for you? It doesn’t make dollars or sense.
What happens when you don’t pay your taxes?
Now let’s talk about what happens when you can’t pay your taxes – or if you already have fallen behind. Even if you’re current on your taxes right now, it’s helpful to know this stuff. That way, should you or anyone you know get in trouble with the IRS, you’ll realize there are legal ways out of that bind. In fact, here’s a news nugget that surprises most Americans: The IRS wants to help you get out of tax trouble. It’s true. The IRS doesn’t want you to stress out over your taxes. So let’s review all the ways Americans mess that up.
How to get in trouble with the IRS
You might think the major way to anger the IRS would be to not pay your taxes. Actually, that’s not the case. After all, the tax code is complicated, and the IRS knows that. So they actually want to work with you to make sure everything is proper and legal. But if you ignore their letters, well, then they get upset. And who wouldn’t No one likes being ignored.
Listen to Tom Vastardis, a CPA and tax preparer with three decades of experience. Tom says, “You should never ignore a letter from the IRS. An unopened IRS letter could eventually lead to bank account levies, garnishments on paychecks, loss of appeal rights in tax court, even a tax lien on property.” Always open those letters, and always read them carefully and follow the instructions. It will save you money and huge headaches later on.
Why did I get a letter, anyway?
Not all IRS letters are bad. In fact, the IRS will even send you a letter if you’re owed a refund, or if the IRS just needs more information about you. Of course, the scariest IRS letters are the ones that say you owe money. While you don’t want to ignore any IRS letter, these are the worst to ignore. As Tom Vastardis says, that can result in the IRS eventually seizing your assets. The sad part is, that’s totally avoidable.
What to do if you owe back taxes…
As Tom Vastardis says, the IRS isn’t trying to scare you or even intimidate you. They just want what they think they’re owed. If you get a letter saying you owe back taxes, Tom recommends, “After opening the letter, you should immediately call an accountant.” Why? Because this is one time that do-it-yourself doesn’t really work.
How to get out of trouble with the IRS
Regardless of whether you call an expert or go it on your own, the crucial first step is simply taking that first step. Jacob Dayan has been a tax attorney for more than a decade, and his firm has helped more than 60,000 clients. He says nothing is more costly than waiting to reply to an IRS letter that’s sent to you. If it’s a simple matter, you might want to handle it yourself. But Jacob agrees with Tom Vastardis and says for more complicated matters, you’ll actually save money hiring a professional.
Don’t be afraid of the IRS – or try to figure it out.
The number-one reason people wait too long to reply to the IRS? They want to figure out all the angles first. But that’s impossible even for the pros. As Jacob Dayan says, the IRS is very secretive about its process. So the real goal isn’t figuring out why the IRS does what it does. The goal is figuring out what you can do when they’re looking at you.
Understanding what tax debt is – and isn’t…
Whenever you owe the IRS, it’s because you have tax debt. You either paid too little or too late. Now the IRS wants you to settle up. First thing to know, though: The IRS can’t send you to jail. Debtor’s prisons haven’t existed in this country since the mid-1800s. As long as you’re not engaged in tax evasion, you’re OK. What’s tax evasion? It’s intentionally not paying or underpaying your taxes. That’s different than making a few honest mistakes or not having enough cash to immediately settle up.
Understanding tax penalties
That said, lots of bad things can happen if you don’t work with the IRS to pay back what you owe. The IRS starts a clock on your back taxes, and the longer it takes you to settle up, the more penalties you owe. If you refuse to work with the IRS, the IRS will work you over. The agency can garnish your wages and seize money from your bank account. That’s never pleasant.
Figuring out “compliance”
The IRS cares most about compliance. What’s that? It’s the fancy way of saying you’re talking to the IRS and working out a plan to pay everything off. Of course, the IRS doesn’t take your word for that, so it reviews your records. Basically, as Jacob Dayan says, “The IRS wants to be confident that you will not owe in the future before they agree to a resolution program.”
How long do you have to pay everything back?
This is really where it starts to get tricky. You usually have 72 months to straighten everything out. But the IRS isn’t the cold, heartless agency you’ve heard so much about. If you can prove financial hardship, the IRS will often cut you some slack in various ways. The problem is figuring out how to communicate all that to a large bureaucracy.
IRS terminology is confusing
When you owe back taxes, you also get hit with some complex terminology. Just to define that first one, CNC status is what you get if paying anything toward your tax debt would throw you into a financial crisis. In that case, there’s a whole separate process you follow.
Why you need a tax pro
Of course, if you’re financially struggling, CNC status is what you want. But here’s the rub: The IRS just doesn’t tell you, “Hey, here’s something that could help you.” That’s why you need to work with a tax professional who knows all the ways the IRS will give you a break – legally. But there’s a difference between what’s legal and what’s widely known.
Avoiding tax scams
Another benefit to consulting a tax pro is avoiding tax scams. Sadly, there are bad people out there who look for people in tax problems – and then try to rip them off. These poor folks don’t know that IRS would never call your personal residence and threaten to send police to your home. These scammers are preying upon your fear to give them money or information they can use. The truth is, the IRS will send out several notices before anything negative happens.
How to find a reliable tax pro
The best tax pros have a few things in common. They’ve been doing this for years, they have great online reviews, and they’re highly rated by the Better Business Bureau. They’re also quite measured in their promises. As the FTC says, if someone is promising to solve your problems without even reviewing your information, watch out. Better yet, seek out an attorney who works at a firm specializing in tax relief.
The best tax hack of them all
Ethical tax pros won’t charge you their entire fee up front. Run from anyone who demands that. Also be leery of anyone who says you qualify for a program without diving into your details. That’s impossible. Also avoid any ads you see online or hear on the radio that purport to give you “secrets the IRS doesn’t want you to know.” If you’ve learned anything today, it’s that the IRS wants you to know everything. The agency might not explain it very well, but the IRS wants its money, and it won’t get that money if it keeps secrets.
Thank You
So that’s the end and for some of us it’s just the beginning. If you owe back taxes or you fear you’re about to, all is not lost. In fact, you can get professional help and get your life back on track. The IRS might not be your best friend, but guess what it’s not your worst enemy either. You just need a knowing ally on your side. Drop us a line and we can help you take your first step. Now I must tell you that Consolidated Credit may be able to help you save money and get out of debt faster than you can on your own. Our licensed and trained credit counselors will provide you with a free budget analysis. We work with your creditors to lower your interest rates and eliminate fees. We here at Consolidated Credit can also consolidate your credit card debt into one low monthly payment. Give us a call at 1-800-210-3481 to speak with a certified credit counselor and start your path to getting out of debt today, or you can simply go to our website at www.ConsolidatedCredit.org. Tell us a little bit about yourself and one of our client counselors will be happy to call you, engage in conversation, find out other ways that we can assist you. If you have any questions you have pertaining to this webinar, email them to [email protected].