Author: James Coleman
Source: articleage.com
The Federal budget deficit is big and getting bigger. As you may be aware, our political leadership in both parties is not fond of cutting spending despite what they may say to voters from time to time. Since raising taxes is not popular, a decision has been made to get tough on the taxes that are owed to Uncle Sam. The IRS is now getting very tough on collecting tax debts. Enforcement Action is up and Offer-in-Compromise settlements are way down over the last few years.
If you or a client of yours owes delinquent Federal taxes, be prepared for a financial proctology if you want to set up a payment plan or settle with IRS for less than what is owed. An IRS Form 433A or 433F may be required for individuals and a 433B for business taxpayers. Many expenses claimed are subject to limits known as the "IRS National Standards." Get the current IRS standards from their website.
If more than $25K is due, the following documented proof may be required by IRS to set up a payment plan:
1. Three months of all bank account statements the taxpayer has in their name;
2. 401k Statements;
3. Three months of pay stubs or proof of year-to-date earnings and deductions;
4. Proof of monthly bills (rent, mortgage, utilities, childcare, etc.);
5. Paid medical bills and prescription drugs; and
6. Car note, car valuation, mortgage balance, insurance costs.
If you own property, IRS may require that you apply for a loan before they will grant you an Installment Agreement or Temporary Hardship. A loan denial letter might be required to be submitted to the Revenue Officer (RO) or to the Automated Collection System (ACS) representative working the case.
The best thing that you can do if you want to avoid being put through the ringer on providing financial data is to pay your balance in full or get it below $25,000 before it gets to an IRS collector. If you can get it below $25K, chances are you can get a "streamlined" installment agreement and only have to meet requirements to pay off the debt in less than 60 months.
Don't ignore any letters you get from IRS! Wishing the IRS will go away won't make it so. The good news is that IRS is still allowing folks a 120 day grace period to full pay. You must ask for it and all delinquent tax returns must be filed. In addition, no enforcement action can be in place at the time you make the request.
Ignoring the IRS or missing an IRS deadline will likely result in enforcement action. If the IRS garnishes your wages, the levy will likely not be released until a full financial statement is given, all delinquent returns are filed, and a resolution is agreed to by the RO or ACS. If your bank account is seized: barring an extreme hardship that can be proven…kiss the money good bye.
If you owe a large tax debt, get professional help. Hire a Certified Public Accountant (CPA), Enrolled Agent (EA), or a Tax Attorney who is familiar with collection cases. Don't hire some company that promises you that they can "wipe out" all your taxes, penalty, and interest just by signing their Power-of-Attorney. Make sure whomever you hire takes a complete financial statement from you. Without it, promises of what kind of IRS deal they can get you are probably bogus.
The IRS has a program to settle tax debts for less than what is owed, but only for those people who qualify. It is called the Offer-in-Compromise. Very few will ever qualify for an OIC. IRS is currently rejecting over 80% of the OICs it is getting.
Even getting a payment plan is difficult if you have a large tax debt.
If you are dealing with a serious IRS problem, stay focused and don't get depressed. If you let a tax problem overwhelm you, then you are doing a disservice to yourself and your family. After all, it is only money. Before you call IRS: get your documentation together; prepare an IRS Form 433A, 433B or 433F and double check your figures. When dealing with IRS employees, stay calm and polite no matter how cold they might be to you. They have a tough job to do and have to follow the procedures they are given by IRS management. They are not bad people and neither are you. Good luck!
You can find help at the following websites:
www.irs.gov (Internal Revenue service)
www.naea.org (National Association of Enrolled Agents)
www.ascpa.com (American Society of CPAs)
www.nsacct.org (National Society of Accountants)
James Robert Coleman, E.A., A.T.A.
Enrolled Agent, Accredited Tax Advisor, former IRS Revenue Officer.
Member-National Association of Enrolled Agents & National Society of Accountants.
http://www.exirsman.com
Showing posts with label pay. Show all posts
Showing posts with label pay. Show all posts
Friday, December 11, 2009
Saturday, December 5, 2009
Bailiffs & Council Tax - Knowing What To Do
Author: Michael Sherriff
Source: articleage.com
This article is about bailiffs who may call trying to collect Council Tax or Community Charge (Poll Tax) arrears. If a bailiff has contacted you to collect another sort of debt the law might be different.
Council Tax and Poll Tax are usually collected by private firms of bailiffs on behalf of your local council. They try to take your goods away and sell them, usually at auction, to raise money to pay the debt. The process they have to follow to say they want your goods is called 'distraining' or 'levying'.
From October 1998 bailiffs who call must be "certificated". This means they must have a certificate from the County Court allowing them to act as bailiffs. You can complain to the County Court about a certificated bailiff.
From April 1998 you should get a letter from the Council telling you how much you owe and warning you that a bailiff will call if you do not pay the debt within 14 days. It will also tell you who to contact at the council if you have a query. Contact the council and try to make an arrangement to pay what you can afford immediately. If the council agrees then they can stop bailiffs calling out and save you extra fees.
DO I HAVE TO LET THE BAILIFFS IN?
IF THE BAILIFFS HAVE NOT BEEN INTO YOUR HOME BEFORE TO COLLECT THIS DEBT, THEY HAVE NO RIGHT TO COME IN. THEY CANNOT BREAK IN. YOU CAN CHOOSE NOT TO LET THEM IN.
* DON'T open the door to them as they may try to push past you. If they get inside, they have a right to enter again and may break in to take your goods.
* DON'T leave windows open or doors unlocked - bailiffs can legally get in through these. Bailiffs CANNOT get the police to help them break in.
* BEWARE! Some bailiffs may leave you a phone number, and arrange to come round to 'have a chat'. Don't let them in, even if they say it's only to use the toilet or make a phone call.
* Bailiffs MAY try to break into sheds, garages, greenhouses etc., even though this is illegal. KEEP VALUABLES SAFE! They may be able to take cars, motor-bikes and other vehicles parked near your home.
* Politely but firmly refuse to let the bailiffs in. Offer what you can afford to pay. If the bailiffs accept your offer, ask them to return to their car, and go out and pay them. Make sure you get a receipt.
DON'T SIGN ANYTHING! If the bailiff leaves papers for you to sign and return, you do not have to do this. You don't have to sign agreements posted through your door either.
THE BAILIFFS HAVE ALREADY BEEN INSIDE MY HOME
THIS IS MORE SERIOUS. If you have let them in before, then bailiffs have the right to return to you home and if you don't let them in, they are allowed to break in.
* Contact the bailiffs straight away and make an offer to pay the debt in instalments. Show them a copy of your personal budget so they can see you are offering as much as you can afford. You will need to treat this as a priority debt as bailiffs could come back and take any goods they have listed if you don't pay. Get a receipt for any payments you make.
* Contact you council and ask them to take the debt back. Ask your local Councillor for help.
WHAT THINGS ARE THE BAILIFFS ALLOWED TO TAKE?
There are some things that the bailiffs are not allowed to take at all; such as goods that are rented or hired. The regulations also say that the following items are exempt and can't be taken:
* "Such tools, books, vehicles and other items of equipment as are necessary for use personally in employment, business or vocation"
* "Such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying basic domestic needs of the person and family".
* This list is not very specific so you may find that bailiffs have a different idea of what items are necessary for you to keep and what can be taken. You can complain about what the bailiffs take if you feel the items should have been exempt.
CAN THE BAILIFFS TAKE THINGS WHICH ARE NOT MINE?
The bailiffs can only take things which belong to you and/or goods which are jointly owned by you and your partner. If they want to take goods that belong to someone else (your children, partner, lodgers etc.) explain that the goods do not belong to you. If you can, show a receipt or note as proof. The owner of the goods may have to provide a sworn statement in the form of a "statutory declaration" to say this is the case. They cannot take goods which are rented or hired. This includes goods on hire purchase agreements. Show them a copy of your credit agreement if you can.
WHAT IF I HIDE THINGS OR GIVE THEM AWAY?
If the bailiffs haven't yet been in, you can hide things or take them somewhere else. If the bailiffs have already been in, you are committing an offence if you remove goods that they have said they will take. You can hide them on your premises but the bailiffs can search for them.
BAILIFFS PROCEDURES
If the bailiffs are distraining for Poll Tax or Council Tax, there are certain procedures that they have to follow. They must have with them:-
* written authorisation from the council for them to call. They should show you this if you ask.
They must leave you a copy of:-
* the law setting out their powers and what they can and cannot do. These are the "Enforcement Regulations".
* the charges the bailiffs are allowed to make for each visit. You should check they have not added too much on to your debt. See the schedule at the end of this fact sheet.
* any agreement you have actually signed. This will be called a "Walking Possession" agreement and includes a list of goods the bailiffs have warned you they may take.
HOW DO I STOP THE BAILIFFS?
* You can try to make an arrangement to pay the debt back at a rate that you can afford. You can offer the money directly to the bailiffs, although it is easier to get them to accept your offer if they have never been into your home. Always get a receipt for any money you pay.
* Bailiffs cannot send you to prison. If the bailiffs have never been into your home and they will not accept your offer, all they can do is to pass your debt back to the council. It is important to make an arrangement to pay the council, or they may try other ways of recovering the money, such as taking money out of your wages or your benefit.
* If the bailiffs refuse your offer it is important to put the money you have offered aside so you can pay it to the council as soon as the debt is passed back to them. Write to the bailiffs and the council telling them you are saving the money up as the bailiffs have refused to take your payments.
* If you are on Income Support, Pension Credit or Job Seekers Allowance, some councils' have a policy for not using bailiffs and will accept an offer from you or agree to accept direct payments from your benefits. Ask your council if they are willing to take the debt back from the bailiffs so you can pay them directly.
* If the council won't help then contact your local councillor and ask them to take it up with the council for you. Explain what hardship you will be in if the bailiffs come to your home and take your belongings.
HOW DO I COMPLAIN?
The Lord Chancellors Department has issued National Standards for Enforcement Agents. These good practice guidelines set out general rules for how bailiffs should behave and what procedures they should follow. You can mention these standards in your complaint but the standards are not enforceable by law. We can give you details of the standards or they may be found at the Department for Constitutional Affairs website www.dca. gov.uk/enforcement/agents02.htm
GET ADVICE FIRST. Bailiffs law is very complex, and even if you think that what they have done is unfair, they may still be acting within the law.
* From October 1998 bailiffs have to have a certificate granted by a court to collect Council Tax. A complaint from you can help get the certificate withdrawn. Ask your local County court if they have a form for making a complaint. If not, write in to the Court Manager with details. The Court will hold a hearing and can cancel the bailiff's certificate, order compensation and order return of the goods. A bailiff can be fined for collecting without a certificate.
* You can complain to the Magistrates Court, and there have been cases recently where the debt has, in effect, been written off when it has been proved that bailiffs have acted illegally. This is done by making a complaint and asking for a hearing. The court can order return of the goods or compensation.
* You should complain to the council as the bailiffs are acting as their agent. They can ask the bailiffs to look at your complaint and change their procedures. If the council won't help you could talk to your local councillor who may be prepared to take your complaint up with the council.
* You can ask the local Government Ombudsman to look at your complaint if the Council refuse to help you.
BAILIFFS CHARGES
You may be able to complain about bailiffs charges. The amounts they are allowed to charge for council tax and poll tax are set out in the schedule on page 5. The amounts they are allowed to charge for council tax are set out on the next page in the schedule. There are lower fees for poll tax collection. These are shown in italics. If you feel you have been charged too much you can complain in writing to the Council and the bailiffs. You may be able to ask the County Court to look at the charges for you see below. Phone us for advice.
You can find out what is 'reasonable' by making enquiries on a local basis. For example, if you have been charged ฃ80 for attendance with a van, and local enquires indicate you could hire a van for a morning for ฃ40 this is clearly unreasonable, especially as it is likely that bailiffs will be visiting several properties at once, and many companies own their own vans.
In the first instance, complain to the bailiffs themselves. You can tell them you know their charges are excessive and that you will be taking further action if the charges are not reduced to the levels shown in the schedule.
* You can then complain to the council as the bailiffs are acting as agents of the Council. There have been recent cases that have been taken back in front of the Magistrates Court over these issues, with the result that the councils have been forbidden to take any further recovery action, or in other words, the debt has been written off. So it IS worth complaining.
* You can apply to the County Court for the costs to be checked. This is called "Taxation". The court can look at a complaint within 12 months. They will decide if the charges are excessive or not. There is a fee to pay to the court for this application. If the court decides not reduce the bill at least 20% you can be liable for the bailiffs firm's court costs. You need legal advice first.
USEFUL LINKS
The Secretary
Association of Civil Enforcement Agencies
Kensington House
33 Imperial Square
Cheltenam
Glos
Tel: 01242 241456
Website: www.acea.org.uk
The Secretary
Enforcement Services Association (ENSAS)
(formally The Certificated Bailiffs Association) Ridgefield House
14 John Dalton Street Manchester M2 6JR Tel: 0161 839 7225
Website: www.bailiffs.org.uk
Local Government Ombudsman (England)
Millbank Tower
Milbank
London SW1P 4QP
Advice Line: 0845 602 1983
Monday to Friday 9.00 am - 4.30 pm. Website: www.lgo.org.uk
There are 3 Local Government Ombudsman offices for England. Please contact the advice line to check where to send any complaint.
Local Government Ombudsman (Wales)
Derwen House Court Road Bridgend
CF31 1BN
Tel: 01656 661 325
Website: www.ombudsman-wales.org
Author: Michael Sherriff
After writing 100's of articles relating to UK Credit and finance Michael has also written a book that blows away the myths surrounding UK credit repair. A number one seller in the UK called "UK Credit Secrets 2005 Edition". This book can be found at UK Credit Secrets
Source: articleage.com
This article is about bailiffs who may call trying to collect Council Tax or Community Charge (Poll Tax) arrears. If a bailiff has contacted you to collect another sort of debt the law might be different.
Council Tax and Poll Tax are usually collected by private firms of bailiffs on behalf of your local council. They try to take your goods away and sell them, usually at auction, to raise money to pay the debt. The process they have to follow to say they want your goods is called 'distraining' or 'levying'.
From October 1998 bailiffs who call must be "certificated". This means they must have a certificate from the County Court allowing them to act as bailiffs. You can complain to the County Court about a certificated bailiff.
From April 1998 you should get a letter from the Council telling you how much you owe and warning you that a bailiff will call if you do not pay the debt within 14 days. It will also tell you who to contact at the council if you have a query. Contact the council and try to make an arrangement to pay what you can afford immediately. If the council agrees then they can stop bailiffs calling out and save you extra fees.
DO I HAVE TO LET THE BAILIFFS IN?
IF THE BAILIFFS HAVE NOT BEEN INTO YOUR HOME BEFORE TO COLLECT THIS DEBT, THEY HAVE NO RIGHT TO COME IN. THEY CANNOT BREAK IN. YOU CAN CHOOSE NOT TO LET THEM IN.
* DON'T open the door to them as they may try to push past you. If they get inside, they have a right to enter again and may break in to take your goods.
* DON'T leave windows open or doors unlocked - bailiffs can legally get in through these. Bailiffs CANNOT get the police to help them break in.
* BEWARE! Some bailiffs may leave you a phone number, and arrange to come round to 'have a chat'. Don't let them in, even if they say it's only to use the toilet or make a phone call.
* Bailiffs MAY try to break into sheds, garages, greenhouses etc., even though this is illegal. KEEP VALUABLES SAFE! They may be able to take cars, motor-bikes and other vehicles parked near your home.
* Politely but firmly refuse to let the bailiffs in. Offer what you can afford to pay. If the bailiffs accept your offer, ask them to return to their car, and go out and pay them. Make sure you get a receipt.
DON'T SIGN ANYTHING! If the bailiff leaves papers for you to sign and return, you do not have to do this. You don't have to sign agreements posted through your door either.
THE BAILIFFS HAVE ALREADY BEEN INSIDE MY HOME
THIS IS MORE SERIOUS. If you have let them in before, then bailiffs have the right to return to you home and if you don't let them in, they are allowed to break in.
* Contact the bailiffs straight away and make an offer to pay the debt in instalments. Show them a copy of your personal budget so they can see you are offering as much as you can afford. You will need to treat this as a priority debt as bailiffs could come back and take any goods they have listed if you don't pay. Get a receipt for any payments you make.
* Contact you council and ask them to take the debt back. Ask your local Councillor for help.
WHAT THINGS ARE THE BAILIFFS ALLOWED TO TAKE?
There are some things that the bailiffs are not allowed to take at all; such as goods that are rented or hired. The regulations also say that the following items are exempt and can't be taken:
* "Such tools, books, vehicles and other items of equipment as are necessary for use personally in employment, business or vocation"
* "Such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying basic domestic needs of the person and family".
* This list is not very specific so you may find that bailiffs have a different idea of what items are necessary for you to keep and what can be taken. You can complain about what the bailiffs take if you feel the items should have been exempt.
CAN THE BAILIFFS TAKE THINGS WHICH ARE NOT MINE?
The bailiffs can only take things which belong to you and/or goods which are jointly owned by you and your partner. If they want to take goods that belong to someone else (your children, partner, lodgers etc.) explain that the goods do not belong to you. If you can, show a receipt or note as proof. The owner of the goods may have to provide a sworn statement in the form of a "statutory declaration" to say this is the case. They cannot take goods which are rented or hired. This includes goods on hire purchase agreements. Show them a copy of your credit agreement if you can.
WHAT IF I HIDE THINGS OR GIVE THEM AWAY?
If the bailiffs haven't yet been in, you can hide things or take them somewhere else. If the bailiffs have already been in, you are committing an offence if you remove goods that they have said they will take. You can hide them on your premises but the bailiffs can search for them.
BAILIFFS PROCEDURES
If the bailiffs are distraining for Poll Tax or Council Tax, there are certain procedures that they have to follow. They must have with them:-
* written authorisation from the council for them to call. They should show you this if you ask.
They must leave you a copy of:-
* the law setting out their powers and what they can and cannot do. These are the "Enforcement Regulations".
* the charges the bailiffs are allowed to make for each visit. You should check they have not added too much on to your debt. See the schedule at the end of this fact sheet.
* any agreement you have actually signed. This will be called a "Walking Possession" agreement and includes a list of goods the bailiffs have warned you they may take.
HOW DO I STOP THE BAILIFFS?
* You can try to make an arrangement to pay the debt back at a rate that you can afford. You can offer the money directly to the bailiffs, although it is easier to get them to accept your offer if they have never been into your home. Always get a receipt for any money you pay.
* Bailiffs cannot send you to prison. If the bailiffs have never been into your home and they will not accept your offer, all they can do is to pass your debt back to the council. It is important to make an arrangement to pay the council, or they may try other ways of recovering the money, such as taking money out of your wages or your benefit.
* If the bailiffs refuse your offer it is important to put the money you have offered aside so you can pay it to the council as soon as the debt is passed back to them. Write to the bailiffs and the council telling them you are saving the money up as the bailiffs have refused to take your payments.
* If you are on Income Support, Pension Credit or Job Seekers Allowance, some councils' have a policy for not using bailiffs and will accept an offer from you or agree to accept direct payments from your benefits. Ask your council if they are willing to take the debt back from the bailiffs so you can pay them directly.
* If the council won't help then contact your local councillor and ask them to take it up with the council for you. Explain what hardship you will be in if the bailiffs come to your home and take your belongings.
HOW DO I COMPLAIN?
The Lord Chancellors Department has issued National Standards for Enforcement Agents. These good practice guidelines set out general rules for how bailiffs should behave and what procedures they should follow. You can mention these standards in your complaint but the standards are not enforceable by law. We can give you details of the standards or they may be found at the Department for Constitutional Affairs website www.dca. gov.uk/enforcement/agents02.htm
GET ADVICE FIRST. Bailiffs law is very complex, and even if you think that what they have done is unfair, they may still be acting within the law.
* From October 1998 bailiffs have to have a certificate granted by a court to collect Council Tax. A complaint from you can help get the certificate withdrawn. Ask your local County court if they have a form for making a complaint. If not, write in to the Court Manager with details. The Court will hold a hearing and can cancel the bailiff's certificate, order compensation and order return of the goods. A bailiff can be fined for collecting without a certificate.
* You can complain to the Magistrates Court, and there have been cases recently where the debt has, in effect, been written off when it has been proved that bailiffs have acted illegally. This is done by making a complaint and asking for a hearing. The court can order return of the goods or compensation.
* You should complain to the council as the bailiffs are acting as their agent. They can ask the bailiffs to look at your complaint and change their procedures. If the council won't help you could talk to your local councillor who may be prepared to take your complaint up with the council.
* You can ask the local Government Ombudsman to look at your complaint if the Council refuse to help you.
BAILIFFS CHARGES
You may be able to complain about bailiffs charges. The amounts they are allowed to charge for council tax and poll tax are set out in the schedule on page 5. The amounts they are allowed to charge for council tax are set out on the next page in the schedule. There are lower fees for poll tax collection. These are shown in italics. If you feel you have been charged too much you can complain in writing to the Council and the bailiffs. You may be able to ask the County Court to look at the charges for you see below. Phone us for advice.
You can find out what is 'reasonable' by making enquiries on a local basis. For example, if you have been charged ฃ80 for attendance with a van, and local enquires indicate you could hire a van for a morning for ฃ40 this is clearly unreasonable, especially as it is likely that bailiffs will be visiting several properties at once, and many companies own their own vans.
In the first instance, complain to the bailiffs themselves. You can tell them you know their charges are excessive and that you will be taking further action if the charges are not reduced to the levels shown in the schedule.
* You can then complain to the council as the bailiffs are acting as agents of the Council. There have been recent cases that have been taken back in front of the Magistrates Court over these issues, with the result that the councils have been forbidden to take any further recovery action, or in other words, the debt has been written off. So it IS worth complaining.
* You can apply to the County Court for the costs to be checked. This is called "Taxation". The court can look at a complaint within 12 months. They will decide if the charges are excessive or not. There is a fee to pay to the court for this application. If the court decides not reduce the bill at least 20% you can be liable for the bailiffs firm's court costs. You need legal advice first.
USEFUL LINKS
The Secretary
Association of Civil Enforcement Agencies
Kensington House
33 Imperial Square
Cheltenam
Glos
Tel: 01242 241456
Website: www.acea.org.uk
The Secretary
Enforcement Services Association (ENSAS)
(formally The Certificated Bailiffs Association) Ridgefield House
14 John Dalton Street Manchester M2 6JR Tel: 0161 839 7225
Website: www.bailiffs.org.uk
Local Government Ombudsman (England)
Millbank Tower
Milbank
London SW1P 4QP
Advice Line: 0845 602 1983
Monday to Friday 9.00 am - 4.30 pm. Website: www.lgo.org.uk
There are 3 Local Government Ombudsman offices for England. Please contact the advice line to check where to send any complaint.
Local Government Ombudsman (Wales)
Derwen House Court Road Bridgend
CF31 1BN
Tel: 01656 661 325
Website: www.ombudsman-wales.org
Author: Michael Sherriff
After writing 100's of articles relating to UK Credit and finance Michael has also written a book that blows away the myths surrounding UK credit repair. A number one seller in the UK called "UK Credit Secrets 2005 Edition". This book can be found at UK Credit Secrets
Monday, November 9, 2009
Tax Tips for IT Consultants and Contractors
Author: Stephen Nelson
Source: articleage.com
I live and work, quite literally, down the road from the main Microsoft campus. No surprise, then, that I'm commonly asked by freelance consultants for the best ways that these self-employed independent contractors can minimize their income taxes.
If I can, I try to weasel my way out of the discussion, offering up such basic tidbits as, "Well, be sure to look at the home office deduction." And "make sure you're taking advantage of deductions for health insurance and pension funds."
Usually, those simplistic answers work. Everyone once in a while, though, I encounter some guy who's really motivated to save on taxes. Usually, someone now making good money consulting or contracting… When I can't deflect their questions in some other way, I tell them about the three best ways that independent contractors have to save on taxes.
Technique #1: Smooth Your Income
Whatever you think of the US Internal Revenue Code, you need to know that it's quite progressive. That progressivity means the more you make, the more you pay. The progressivity also means that if your income fluctuates, your income taxes go up even if you make the same money on average as someone else makes.
To give you an example of this, suppose that you compare two consultants, John and Jane. If John makes a steady $60,000 a year and has a mortgage, a spouse and couple of kids, he might pay about $1000 over four years (net of tax credits for these like his children.)
In comparison, suppose that Jane averages $60,000 a year, but sees her income fluctuate between $30,000 a year and $90,000 a year. If she also has a spouse, two kids and a mortgage, she'll probably pay $8,000 to $10,000 over those same four years.
Please note that over the same four years, the two consultants make the same amount of money: $240,000. But what they pay in taxes differs radically. Jane pays eight to ten times what John pays. Bummer.
What can Jane do? Well, let's bring this back to the example of working consultants. Jane can probably smooth her income. She can make sure that she's not stacking two big retainers or performance bonuses in the same year. She can spread out year-end payments over the ending and beginning year in ways that smooth her income out. She can even try to stuff more of her expenses into the good years. In the good years, for example, she can buy new computers, take those graduate classes, or top off her pension.
Technique #2: Setup an LLC and Elect S Corporation Status
I've written and talked much about how S corporations save taxpayers money and how the right way to set up an S corporation is first create a limited liability company and then ask the IRS to treat the LLC as an S corporation for tax purposes.
Let me review the basics here again, however. Suppose that you're making $90,000 a year as a consultant or contractor. If you just treat your business as a sole proprietorship, you might pay $12,000 in income taxes on the $90,000 and then another 15.3% self-employment tax, or roughly $13,500 on the $90,000.
If you set up an LLC and have the LLC treated as an S corporation, you'll still pay the same $12,000 in income taxes. But you'll only pay the 15.3% self-employment tax on that portion of the profit that you categorize as wages. If you categorize, say, $50,000 of the profits as wages, you'll pay $7,500 in self-employment taxes. (The other $40,000 in remaining profits, by the way, gets paid out as a dividend-like "distribution.")
Note, then, that the S corporation saves you roughly $6,000 every year. Sweet, right?
Two quick points about S corporations: First, S corporations require some extra tax and accounting so you don't get to spend all of your savings. Some of the savings go to the lawyer, the accountant, and the bank. Second, you absolutely must set your salary to a reasonable level.
Technique #3: Relocate Your Residency
One final, easy planning gambit if you telecommute. Remember that there are states like Alaska, Florida, Nevada, Texas and Washington that don't charge residents state income taxes. Accordingly, if you relocate to one of these states, you'll automatically drop your overall tax bill because you won't have state income taxes.
Sometimes, one of the benefits of independent contracting and freelance consulting is that is that you do get to live wherever you want. Why not choose a place that doesn't tax your income?
But a caution: Do be careful that you don't get blindsided by the other taxes a state levies. For example, Washington state where I live charges a one and half percent excise tax on service revenue. This is probably still less than the income taxes that many other states charge. But it highlights an important caveat: Before you move to some other state, you definitely want to run the numbers and compare your current state to the possible new state.
Florida LLC formation expert Stephen L. Nelson CPA has written more than 150 books. Formerly an adjunct tax professor at Golden Gate University, Nelson is also the author of Quicken for Dummies. Copyright ฉ by 2006 by Stephen L. Nelson.
Source: articleage.com
I live and work, quite literally, down the road from the main Microsoft campus. No surprise, then, that I'm commonly asked by freelance consultants for the best ways that these self-employed independent contractors can minimize their income taxes.
If I can, I try to weasel my way out of the discussion, offering up such basic tidbits as, "Well, be sure to look at the home office deduction." And "make sure you're taking advantage of deductions for health insurance and pension funds."
Usually, those simplistic answers work. Everyone once in a while, though, I encounter some guy who's really motivated to save on taxes. Usually, someone now making good money consulting or contracting… When I can't deflect their questions in some other way, I tell them about the three best ways that independent contractors have to save on taxes.
Technique #1: Smooth Your Income
Whatever you think of the US Internal Revenue Code, you need to know that it's quite progressive. That progressivity means the more you make, the more you pay. The progressivity also means that if your income fluctuates, your income taxes go up even if you make the same money on average as someone else makes.
To give you an example of this, suppose that you compare two consultants, John and Jane. If John makes a steady $60,000 a year and has a mortgage, a spouse and couple of kids, he might pay about $1000 over four years (net of tax credits for these like his children.)
In comparison, suppose that Jane averages $60,000 a year, but sees her income fluctuate between $30,000 a year and $90,000 a year. If she also has a spouse, two kids and a mortgage, she'll probably pay $8,000 to $10,000 over those same four years.
Please note that over the same four years, the two consultants make the same amount of money: $240,000. But what they pay in taxes differs radically. Jane pays eight to ten times what John pays. Bummer.
What can Jane do? Well, let's bring this back to the example of working consultants. Jane can probably smooth her income. She can make sure that she's not stacking two big retainers or performance bonuses in the same year. She can spread out year-end payments over the ending and beginning year in ways that smooth her income out. She can even try to stuff more of her expenses into the good years. In the good years, for example, she can buy new computers, take those graduate classes, or top off her pension.
Technique #2: Setup an LLC and Elect S Corporation Status
I've written and talked much about how S corporations save taxpayers money and how the right way to set up an S corporation is first create a limited liability company and then ask the IRS to treat the LLC as an S corporation for tax purposes.
Let me review the basics here again, however. Suppose that you're making $90,000 a year as a consultant or contractor. If you just treat your business as a sole proprietorship, you might pay $12,000 in income taxes on the $90,000 and then another 15.3% self-employment tax, or roughly $13,500 on the $90,000.
If you set up an LLC and have the LLC treated as an S corporation, you'll still pay the same $12,000 in income taxes. But you'll only pay the 15.3% self-employment tax on that portion of the profit that you categorize as wages. If you categorize, say, $50,000 of the profits as wages, you'll pay $7,500 in self-employment taxes. (The other $40,000 in remaining profits, by the way, gets paid out as a dividend-like "distribution.")
Note, then, that the S corporation saves you roughly $6,000 every year. Sweet, right?
Two quick points about S corporations: First, S corporations require some extra tax and accounting so you don't get to spend all of your savings. Some of the savings go to the lawyer, the accountant, and the bank. Second, you absolutely must set your salary to a reasonable level.
Technique #3: Relocate Your Residency
One final, easy planning gambit if you telecommute. Remember that there are states like Alaska, Florida, Nevada, Texas and Washington that don't charge residents state income taxes. Accordingly, if you relocate to one of these states, you'll automatically drop your overall tax bill because you won't have state income taxes.
Sometimes, one of the benefits of independent contracting and freelance consulting is that is that you do get to live wherever you want. Why not choose a place that doesn't tax your income?
But a caution: Do be careful that you don't get blindsided by the other taxes a state levies. For example, Washington state where I live charges a one and half percent excise tax on service revenue. This is probably still less than the income taxes that many other states charge. But it highlights an important caveat: Before you move to some other state, you definitely want to run the numbers and compare your current state to the possible new state.
Florida LLC formation expert Stephen L. Nelson CPA has written more than 150 books. Formerly an adjunct tax professor at Golden Gate University, Nelson is also the author of Quicken for Dummies. Copyright ฉ by 2006 by Stephen L. Nelson.
Friday, October 30, 2009
Debt Settlement -- Why the Critics Are Wrong
Author: Charles J. Phelan
Source: articleage.com
A lot more people are becoming interested in debt settlement as an alternative to bankruptcy. That's because a new bankruptcy law was enacted on October 17, 2005, which means a rude awakening for many consumers seeking a fresh start in bankruptcy court.
It used to be that 7 out of 10 people filing personal bankruptcy were granted Chapter 7 status, where the unsecured debts are totally wiped away. That has changed under the new rules. If your income is above the median for your state, or you can pay back at least $100 per month toward your debts, then you'll be turned down for Chapter 7. Instead, you'll be shifted into Chapter 13, where you pay back a portion of the debt over 3-5 years.
It gets worse. When the court calculates your allowable living expenses, it will use the approved IRS schedules, not your actual documented expenses. So even if you don't think you can pay $100 a month or more, the judge will probably disagree. Instead of a fresh start, many people will be faced with the grim reality of a harsh 5-year plan, on a court-mandated budget that forces them to adopt a much lower standard of living. That's where debt settlement starts to look pretty attractive.
Yes, I know debt settlement has its critics. I've criticized aspects of the industry myself. But what the critics don't seem to understand is that this approach is for people who would otherwise go bankrupt! Let's examine the three main complaints against debt settlement and see where the critics are missing the mark.
"Debt settlement has a negative impact on your credit score."
Wow. Big deal! Pretend it's two years from now. Would you rather have an A+ credit rating or be totally free of debt? Pick one please, because you can't have both. All debt reduction programs have a negative impact on credit scores. That's why only people who truly can't keep up with their bills should go into one of these programs. But it's pointless to worry about your credit while you're being crushed with debt. That's like worrying about how the yard looks after your house has burned down.
"You might have to pay taxes on the canceled portion of the debt."
I've always been amazed at how frequently this lame criticism is repeated in article after article. Yes, it's possible that you may need to pay taxes on forgiven debt balances, but the odds are against it. That's because the IRS allows insolvent taxpayers to exclude canceled debts. So unless you have a positive net worth, you probably won't need to pay taxes on your settlements. And even if you did, so what? You'd be paying taxes because you saved a bunch of money off your debts! And this is a problem?
"Collection activity will continue and you might get sued."
Yes, if you fall behind on your bills, your creditors will most certainly continue attempts to collect what's owed, and one or more of those creditors might sue you in civil court. But again, this criticism totally misses the mark. Collection activity is already a function of being in debt trouble. At least debt settlement allows the consumer to use the collection process to eliminate debt through negotiated compromises. Even lawsuits need not be cause for panic, since they can often be settled out of court. The only reason to allow a legal action to proceed to the point of wage garnishment, property lien, or bank levy is lack of financial resources with which to settle. And if that's the case, the debtor should be talking to a bankruptcy attorney anyway.
In contrast, let's look at some of the positives of debt settlement.
1. You can save $1,000s versus any other method of debt elimination (except for Chapter 7 bankruptcy, which is much more difficult to accomplish now that the new law is in effect).
2. You can get out of debt in 2-3 years, and much faster if there is some available home equity to work with. This is a lot better than 5 years in the financial boot camp of Chapter 13 bankruptcy, or 5-9 years in a credit counseling program.
3. You keep control over the process more than with any other approach.
4. You maintain personal privacy. With bankruptcy, your case file becomes a matter of public record, easily located via Internet search by future employers, landlords, or creditors.
5. You retain your dignity while working through your financial problems. Bankruptcy still feels like failure to a lot of people. Debt settlement represents an honest and ethical alternative to that extreme solution.
6. You can adjust your monthly funding into the settlement program up or down depending on real-world conditions in your financial life. If your income fluctuates from one month to the next, or you get hit with an unexpected expense, it won't torpedo the whole program. The built-in flexibility of debt settlement gives it a huge advantage over other options, all of which require a fixed monthly payment.
Once you're made the determination that debt settlement makes sense for your situation, you'll need to decide whether to go it alone or seek professional assistance. For people who aren't easily intimidated, there's no question that the do-it-yourself approach is the way to go. For others who can't handle the least bit of pressure or just want to focus their time and energy elsewhere, hiring a professional settlement company may be the correct choice.
If you do decide to take the do-it-yourself approach, follow these tips:
* Use a privacy manager on your telephone service to screen creditor calls so that you only speak to creditors when you're ready.
* Make sure you have a solid game plan for building up money to settle with, and set the funds aside in a separate bank account.
* Do not send settlement funds until you have the deal in writing. No exceptions!
* After paying the settlement, follow up to obtain a zero balance letter from the creditor, so you don't have bogus collection problems later on.
* Know your rights as a consumer by reading the free resource articles on debt, credit, and collections at the Federal Trade Commission website: www.ftc.gov
* Don't be intimidated or pressured into accepting a settlement deal that you can't handle.
Remember, thousands of people settle their own debts every year, without the need for lawyers or bankruptcy. You can do it too if you're disciplined, determined, and prepared to ignore some of the crazy stuff that bill collectors say. When you're finally debt-free, you'll feel a lot better about having worked it out on your own. Good luck on your road to debt freedom!
Source: articleage.com
A lot more people are becoming interested in debt settlement as an alternative to bankruptcy. That's because a new bankruptcy law was enacted on October 17, 2005, which means a rude awakening for many consumers seeking a fresh start in bankruptcy court.
It used to be that 7 out of 10 people filing personal bankruptcy were granted Chapter 7 status, where the unsecured debts are totally wiped away. That has changed under the new rules. If your income is above the median for your state, or you can pay back at least $100 per month toward your debts, then you'll be turned down for Chapter 7. Instead, you'll be shifted into Chapter 13, where you pay back a portion of the debt over 3-5 years.
It gets worse. When the court calculates your allowable living expenses, it will use the approved IRS schedules, not your actual documented expenses. So even if you don't think you can pay $100 a month or more, the judge will probably disagree. Instead of a fresh start, many people will be faced with the grim reality of a harsh 5-year plan, on a court-mandated budget that forces them to adopt a much lower standard of living. That's where debt settlement starts to look pretty attractive.
Yes, I know debt settlement has its critics. I've criticized aspects of the industry myself. But what the critics don't seem to understand is that this approach is for people who would otherwise go bankrupt! Let's examine the three main complaints against debt settlement and see where the critics are missing the mark.
"Debt settlement has a negative impact on your credit score."
Wow. Big deal! Pretend it's two years from now. Would you rather have an A+ credit rating or be totally free of debt? Pick one please, because you can't have both. All debt reduction programs have a negative impact on credit scores. That's why only people who truly can't keep up with their bills should go into one of these programs. But it's pointless to worry about your credit while you're being crushed with debt. That's like worrying about how the yard looks after your house has burned down.
"You might have to pay taxes on the canceled portion of the debt."
I've always been amazed at how frequently this lame criticism is repeated in article after article. Yes, it's possible that you may need to pay taxes on forgiven debt balances, but the odds are against it. That's because the IRS allows insolvent taxpayers to exclude canceled debts. So unless you have a positive net worth, you probably won't need to pay taxes on your settlements. And even if you did, so what? You'd be paying taxes because you saved a bunch of money off your debts! And this is a problem?
"Collection activity will continue and you might get sued."
Yes, if you fall behind on your bills, your creditors will most certainly continue attempts to collect what's owed, and one or more of those creditors might sue you in civil court. But again, this criticism totally misses the mark. Collection activity is already a function of being in debt trouble. At least debt settlement allows the consumer to use the collection process to eliminate debt through negotiated compromises. Even lawsuits need not be cause for panic, since they can often be settled out of court. The only reason to allow a legal action to proceed to the point of wage garnishment, property lien, or bank levy is lack of financial resources with which to settle. And if that's the case, the debtor should be talking to a bankruptcy attorney anyway.
In contrast, let's look at some of the positives of debt settlement.
1. You can save $1,000s versus any other method of debt elimination (except for Chapter 7 bankruptcy, which is much more difficult to accomplish now that the new law is in effect).
2. You can get out of debt in 2-3 years, and much faster if there is some available home equity to work with. This is a lot better than 5 years in the financial boot camp of Chapter 13 bankruptcy, or 5-9 years in a credit counseling program.
3. You keep control over the process more than with any other approach.
4. You maintain personal privacy. With bankruptcy, your case file becomes a matter of public record, easily located via Internet search by future employers, landlords, or creditors.
5. You retain your dignity while working through your financial problems. Bankruptcy still feels like failure to a lot of people. Debt settlement represents an honest and ethical alternative to that extreme solution.
6. You can adjust your monthly funding into the settlement program up or down depending on real-world conditions in your financial life. If your income fluctuates from one month to the next, or you get hit with an unexpected expense, it won't torpedo the whole program. The built-in flexibility of debt settlement gives it a huge advantage over other options, all of which require a fixed monthly payment.
Once you're made the determination that debt settlement makes sense for your situation, you'll need to decide whether to go it alone or seek professional assistance. For people who aren't easily intimidated, there's no question that the do-it-yourself approach is the way to go. For others who can't handle the least bit of pressure or just want to focus their time and energy elsewhere, hiring a professional settlement company may be the correct choice.
If you do decide to take the do-it-yourself approach, follow these tips:
* Use a privacy manager on your telephone service to screen creditor calls so that you only speak to creditors when you're ready.
* Make sure you have a solid game plan for building up money to settle with, and set the funds aside in a separate bank account.
* Do not send settlement funds until you have the deal in writing. No exceptions!
* After paying the settlement, follow up to obtain a zero balance letter from the creditor, so you don't have bogus collection problems later on.
* Know your rights as a consumer by reading the free resource articles on debt, credit, and collections at the Federal Trade Commission website: www.ftc.gov
* Don't be intimidated or pressured into accepting a settlement deal that you can't handle.
Remember, thousands of people settle their own debts every year, without the need for lawyers or bankruptcy. You can do it too if you're disciplined, determined, and prepared to ignore some of the crazy stuff that bill collectors say. When you're finally debt-free, you'll feel a lot better about having worked it out on your own. Good luck on your road to debt freedom!
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