elf | robergtaxsolutions.com

If you’ve received an IRS notice saying that they intend to levy your bank accounts if you don’t pay up in 30 days, then it’s time to pay attention. Before the IRS actually issues a levy notice, they’ve usually made a few attempts at contacting you and trying to get a payment. If you’ve received an IRS levy notice, it means that the IRS hasn’t heard from you—they think you’ve been blowing them off (which in many cases is true). If you ignore the levy notice, they’ll just take your money and the law is on their side so you need to act now.

First, the responsible thing is to call them, or hire someone to deal with them for you. (I personally think that if you’ve reached this point, it’s best to hire someone—but remember, I do this for a living, so note that I’m biased.)

There are things you can do to prevent the IRS from going through with the levy. Let’s assume that you really do owe the money:

1. You can set up a payment arrangement–you pay off the IRS on a monthly bill schedule

2.Your situation might qualify you for an offer in compromise (the pennies on the dollar thing you see in TV commercials), or

3. Maybe you’re going through hard times and need to be put into the currently uncollectable status—you still owe, but the IRS quits hounding you until you get a job or your situation changes.

But maybe you don’t really owe the money. That’s the big kicker for me. Usually, if you’re getting IRS levy notices, you do owe them money—or at least part of it, but I have seen several cases where my clients don’t owe the IRS anything! A couple of times I have even gotten them refunds instead. If you didn’t do your taxes, and the IRS did them for you, don’t assume that the IRS did them right. When the IRS does your taxes for you, they automatically put you in the highest tax bracket they can justify and you get no deductions or tax credits that you might have qualified for. (Here’s a hint: if you’ve got kids, the IRS probably did your taxes wrong.) Even if you find that you don’t owe the IRS money—you still have to contact them, let them know the situation, and then you’re going to have to provide proof. Usually your proof is your corrected tax return.

Dealing with the IRS is the best way to get yourself out of levy trouble. But here are a few things that you also might want to consider doing while the threat of a levy is still hanging over your head:

1. Make sure your name is taken off of your kids’ and/or parents’ bank accounts. If you’re on someone else’s bank account, the IRS can and will levy that account too.

2. Don’t keep large amounts in your bank accounts. If you’ve got lots of cash, then maybe you can just pay your debt. But usually, this isn’t an option for most people. If your paycheck is going direct deposit into your bank account, get the money out immediately. You can put your cash onto a prepaid Visa debit card. Once the levy is in place, the IRS can only take the funds that are in your account at the time of the levy, if you get another deposit, that money is accessible. Transfer money in only as you need to make payments out of the account.

IRS levies are serious business. Don’t make the mistake of ignoring them.

_______________________________________________________________________

Note: We try to answer all the questions that come to us but please be patient. It’s our busy season right now. We may not get to your post until the weekend. When you make a post and use the capcha code, it won’t immediately show up. You see, for every normal person like you that posts, there’s about three advertisements for things your mother wouldn’t approve of. (We try to keep this a G rated website.) We have to edit those out. If you need an answer right away, here are some links that might help:

EIC questions of any kind: http://www.irs.gov/Individuals/Earned-Income-Tax-Credit-(EITC)-%E2%80%93–Use-the-EITC-Assistant-to-Find-Out-if-You-Should-Claim-it.

How to find free tax preparers: http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers

How to find your local IRS office: http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1

If you want to hire us, please call (314) 275-9160 or email us. We do prepare returns for people all over the country (and a few foreign countries as well.) We are sorry but we cannot prepare an EIC return for someone outside of the St. Louis area because of the due diligence requirements.

Photo by Christopher Holden on Flickr.com

I’m sure you’ve heard it all before: 51% of Americans don’t pay any income tax! I got an earful of it just the other day from Granny’s boyfriend (who, by the way, also pays no federal income tax). A lot of people have been asking me about that lately; the two main questions are 1. Is it true? And 2. How come so many people aren’t paying? I did some research and here’s what I found.

1. According to the Tax Policy Institute, 46% of American households are not expected to pay federal income tax in 2011. It’s not 51%, but that’s still a pretty big number.

2. Of that 46% (that’s roughly 76 million American households), half of them pay no federal income tax due to standard deductions and basic exemptions. In English—it means they’re poor. Our tax system doesn’t tax subsistence level incomes. For example: a married couple making $18,700 a year or less would pay no federal income tax. It’s important to note that they still are subject to Social Security and Medicare taxes, either through their wage withholdings or through their self employment taxes on their federal return. There’s a big difference between “no federal income taxes” and “no taxes ”.

3. That leaves 38 million households that pay no income tax because of special provisions in the tax code.

So what are these special provisions and who is affected by them?

1. 44% of those 38 million households are covered under tax benefits for the elderly. That would include the extra standard deduction for senior citizens and the exclusion of some social security benefits from taxation. (The report also mentions the credit for the elderly, but in reality, I have never, ever prepared a return where someone actually qualified for that credit.)

2. Another 30% of those tax provisions are credits given for children and the working poor, namely the Child Tax Credit and the Earned Income Credit.

3. That leaves the remaining 26% (less than 10 million households) reducing their federal income tax liability to zero through tax breaks.

So what are these tax breaks and how do they break down? (By the way, in the Tax Policy Report, Tax breaks are called “Tax expenditure provisions” and households are called “tax units”. Forgive me for trying to make people sound human.)

1. Exclusion of cash transfers accounts for 6% or 2.28 million households. In English we’re talking about people who receive SSI or other non-taxable payments like that.

2. Education credits account for 5.6% or 2.128 million households.

3. Above the line deductions and tax exempt interest account for 5.1% or 1.938 million households. Above the line deductions are those things on the front of a 1040 tax return like the deductions for an IRA, alimony paid, student loan interest and the teacher deduction to name a few. Tax exempt interest is usually earned on state and local government bonds.

4. Itemized deductions account for 5% or 1.9 million households. The most commonly claimed deductions here are for mortgage interest, real estate taxes, state and local taxes, and charitable contributions.

5. Other credits make up 2.5% or just under one million households. The foreign tax credit isn’t counted in this as it’s considered to be a tax paid. This category is more for things like the residential energy credit, items you’ll find on the back of the 1040.

6. The last category is reduced rates on capital gains which accounts for 1.3% or less than half a million households. Regular income is taxed at your regular tax rate, but long term capital gains are taxed at a lower rate (between 0 and 15%).

So what does all this mean and why should you care? That’s the question of the day, isn’t it? Let’s be real, it is kind of aggravating to think that 46% of the American public doesn’t pay any income tax, especially if you’re paying taxes. But where are we going to make the changes?

Do you want to eliminate the tax benefits for the elderly? I’m not recommending that; Granny’ll whop me upside the head. If Congress slashes the Social Security and Medicare budgets, you can’t attack seniors with increased taxes on the other side.

We could reduce the standard deduction and exemptions and push more people into the taxable income category—but that would raise everyone’s taxes, not just the poor.

We could eliminate the other tax breaks like the education credit and itemized deductions, etc. While doing so would take some people out of “pay no income tax” category, it would also greatly increase the taxes of many people who are already paying into the system.

If you’re looking for an easy answer here, there really isn’t one. If you would like to learn more about the Tax Policy study, here’s a link to their site: http://www.taxpolicycenter.org/publications/url.cfm?ID=1001547

Tag: elf

Things To Do If the IRS Threatens to Levy Your Bank Account

The Truth About All Those People Who Don’t Pay Income Tax