Lance Drury Law
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March 2013 Archives

Why Owing Credit Card Debt Is Better Than Owing the IRS

Let's discuss the most obvious way to get out of IRS Debt...Pay the bill.  Now, before you think I'm just being simplistic, this really is an option that should be discussed.  Before we get into the five other options, it's important that we ask the simple question...Is there any way that you could just pay the bill and get on with your life?  Before you immediate say "no", read on. Credit Card Debt is better than owing the IRS.  Don't get me wrong - I'm not a fan of credit cards by any stretch of the imagination.  America's credit card debt is staggering - $800 Billion in 2005, according to an analysis of Federal Reserve Board data by Demos, a national research and consumer advocacy group. Some credit cards charge interest rates of 20% or more, and it's "revolving door" if you only pay the minimum payment due, it often takes years, even decades to pay off the debt.  Plus, I don't know your financial situation personally, but I would venture a guess that if you have problems paying the IRS...that you may have credit card debt problems as well. Did you know that the IRS accepts Visa, MasterCard & American express? With credit cards, according to the IRS website "you can pay current and past due Form 1040 balances along with current year Form 940 balances and current quarter plus the three prior quarters Form 941 balances." You may be thinking "isn't paying the IRS with a credit card like robbing Peter to pay Paul?" Not exactly. First, you're not "robbing Peter" in this scenario.  If you've been extended enough credit by your credit card company to pay off your IRS bill, it's apparently because you have a good enough credit rating to justify the credit card company's risk that you'll pay the money back. Now I'm not suggesting that you don't pay your credit card bill.  But if you're unable to make your credit card payments, there are legal limits to what the credit card companies can do to get you to pay the money.  And "Paul" in this scenario (the IRS) has much more power than "Peter" (the credit card companies) does to get "his" money.

When Should You Consider Back Taxes A Cause For Alarm

Back taxes are simply taxes that you owe that you didn't pay when they were due.  If you've underpaid taxes for any reason, the balance that you owe is considered back tax. You may have failed to report taxable income (intentionally or unintentionally, it doesn't matter) - as the IRS sees still owe them money in the form of a back tax. Some people don't have the money when the tax bill comes around, so they just don't pay.  They may plan on paying the money when they're able...but that time never seems to come around. If nothing seems to happen or they don't get 'caught', some people start believe that they've somehow slipped under the radar of the IRS and that they're getting away with it. They're not. In fact it, may take years for the IRS to come after you, but they will eventually. How do you know your back tax problem is getting serious? Here's how it happens: 1. You'll get sent a Notice of Demand for Payment from the IRS. 2. You either pay or don't pay the tax. 3. If you don't pay you'll be sent a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the levy. That's when you know you've got big problems. That means in 30 days, the IRS is going to start helping themselves to the money in your bank account.  If you've received a Final Notice of Intent to Levy, you need to take action immediately, if this has happened to you.  There's absolutely no time to waste. Once I investigate your case, I may find that there are a number of solutions that could keep the IRS from dipping into your bank account and causing you serious financial hardship:

Simplified Home Office Deduction Calculation Approved by IRS

Who would have thought that the IRS would make taxes easier? It happened with an additional and simpler option for calculating home office deductions.  The new option goes into effect in the 2013 tax year and is in reference to Form 8829. Previously, home office deductions specified on Form 8829 involved a complicated and, at times, vague calculation.  The new deduction is based on $5/sq ft. of office space used.  The maximum deduction is $1500 per person, corresponding to a home office of 300 square feet. Details Rather than replacing the previous, complicated home office deduction calculation scheme, this change will supplement it. Taxpayers retain the option to use the older formula.  It is predicted that many taxpayers are likely to accept the new simpler home office deduction calculation.  The IRS estimates that the resulting time saved in preparing taxes will be roughly 1.6 million hours. Married couples may use the home office deduction separately.  In other words, each spouse may deduct up to 300 square feet at $5/sq ft. for home office space.  Essentially, married couples may claim up to a $3000 deduction for their home office(s). Proceed With Caution There is a catch to using the new deduction calculation.  Insurance, depreciation, repairs and other expenses related to home office upkeep are not deductible with this new option.  Mortgage interest, casualty losses and property taxes still remain legitimate itemized deductions. Additionally, change in formula for calculating a home office deduction does not alter what needs to happen to qualify for a "home office." Regular and exclusive business use remains a requirement, as does a deduction cap set by the business yearly gross income. Lastly, no matter its formula, the home office deduction does not guarantee an audit but the odds increase.  There are instances of legitimate and honest business operators who qualify for the deduction but elect not to take it.  It may happen that the effective cost and stress of an audit, even if passed without problems, outweighs deduction benefits.

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The Law Firm of Lance R. Drury
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