Discovering that you owe back taxes to the IRS can be a stressful and overwhelming experience. Whether due to oversight, financial hardship, or other circumstances, it’s essential to address this issue promptly and accurately. However, determining the exact amount of back taxes owed can be complex. In this article, we’ll outline steps and resources to help you navigate the process of finding out how much you owe the IRS in back taxes.
View Your IRS Online Account
The IRS offers taxpayers access to their own IRS online account where they can view information related to their tax obligations. One of the key things you can access here is your tax balance. If you haven’t already done so, you can visit the IRS website and create an account. You’ll need to provide personal information to verify your identity and create login credentials. While the actual process of creating an IRS online account might seem tedious, the IRS takes extra precautions to safeguard your identity.
Upon logging in, you’ll see the total amount owed and balance details. Here, you should be able to see the total amount you owe the IRS, including any penalties and interest that may have accrued. Your balance is broken down by tax year for added convenience. Depending on your tax situation and the amount owed, the IRS online account portal may also provide information about payment options. This could include setting up a payment plan, making a one-time payment, or exploring other payment arrangements.
Call the IRS
The IRS has dedicated phone lines and representatives available to assist taxpayers with inquiries about their tax accounts, including outstanding tax liabilities. Before calling the IRS, gather any relevant documents, such as tax returns, notices, or correspondence from the IRS. Having this information on hand will help the representative accurately assess your tax situation. If you’re calling on behalf of someone else, you’ll need authorization to discuss their account plus their personal information.
IRS phone wait times can be long, especially during tax time. It’s recommended to contact the IRS via your online account if possible. The IRS can be reached via telephone Monday through Friday from 7am to 7pm local time. Residents of Alaska and Hawaii should follow Pacific time. Residents of Puerto Rico may call from 8am to 8pm local time. Here are the phone numbers:
Individuals: 800-829-1040
Businesses: 800-829-4933
There are also a few phone lines with their own specific hours.
Non-Profits: 877-829-5500 from 8am to 5pm local time
Estates and Gift Taxes: 866-699-4083 from 10am to 2pm Eastern time
Excise Taxes: 866-699-4096 from 8am to 6pm Eastern time
Hearing Impaired: TTY/TDD 800-829-4059
Tax Help for Those Who Owe
Once you’ve determined the amount of back taxes owed, it’s crucial to develop a plan to address your tax debt and prevent further penalties and interest accrual. Depending on your financial situation, you may consider setting up an installment agreement, making an offer in compromise, or exploring other options available through the IRS. For individuals with complex tax situations or those who need assistance navigating the process of resolving back taxes, hiring a tax professional may be beneficial. Tax professionals, such as enrolled agents or tax attorneys, can provide personalized guidance, negotiate with the IRS on your behalf, and help develop a plan to address your tax debt effectively. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Receiving correspondence from the IRS can be an intimidating experience for many taxpayers. Notices like CP75 or CP75A often raise concerns and questions about one’s tax situation. However, understanding what these notices entail and how to respond to them can alleviate anxiety and ensure a smoother resolution. In this guide, we’ll explore what Notice CP75 and CP75A mean, why they are issued, and steps you can take if you receive one.
Understanding Notice CP75 and CP75A
Notice CP75 and CP75A are both sent by the IRS to request verification items from taxpayers who have claimed a certain tax credit, dependents, or filing status. It will often involve the Earned Income Credit (EIC), the Additional Child Tax Credit (ACTC), and/or the Premium Tax Credit. These credits are refundable tax credits designed to assist low to moderate-income families. However, the IRS may need additional information to verify eligibility for these credits.
A CP75A Notice is similar to CP75 but is specifically for taxpayers who claimed a credit, dependent, or filing status for the first time on their tax return. Like CP75, it requests additional information to verify eligibility for these credits.
Reasons for Issuance
There are several reasons why the IRS might issue Notice CP75 or CP75A:
Incomplete Information: Your tax return may lack sufficient information or contain discrepancies that need clarification.
Verification of Eligibility: The IRS may need to verify your eligibility for the EIC and/or ACTC, especially if it’s the first time you’re claiming these credits.
Prevent Fraud: These notices help the IRS prevent fraudulent claims for refundable tax credits.
What to Do If You Receive Notice CP75 or CP75A
Receiving IRS Notice CP75 or CP75A doesn’t necessarily mean there’s a problem with your tax return. However, it’s essential to respond promptly and provide the requested information to avoid delays in processing your return and potential issues with your refund. Here’s what you should do:
Read the Notice Carefully
Take the time to carefully read through the notice to understand why it was sent and what information the IRS is requesting from you.
Gather Documentation
Collect the documentation requested in the notice, such as proof of income, residency, and dependent eligibility. Ensure that the documents are accurate and up-to-date. Depending on the credit, the notice may also be grouped with a form to fill out. Here are a few examples:
To qualify for the EIC, you’ll likely need to send back an enclosed Form 886-H-EIC.
To qualify for the Premium Tax Credit, you’ll need to send back an enclosed Form 14950.
To claim a dependent, you’ll need to submit Form 886-H-DEP.
To confirm your eligibility for a certain filing status, refer to IRS Form 14824.
Respond Promptly
The notice will provide a deadline for responding, typically 30 days. It’s crucial to adhere to this deadline to prevent further delays or complications. If you don’t respond, the IRS will likely assume you don’t want to claim the credit and then adjust your tax return accordingly.
Follow Instructions
Follow the instructions provided in the notice for submitting the requested documentation. This may involve mailing the documents to a specific address or uploading them through the IRS’s online portal.
Seek Assistance if Needed
If you’re unsure about how to respond to the notice or need assistance gathering the required documentation, don’t hesitate to seek help. You can contact the IRS directly or consult a tax professional for guidance.
Keep Records
Make copies of all documents you submit to the IRS and keep them for your records. This will help you track your communication with the IRS and provide proof of compliance if needed.
Monitor Your Mail and Online Account
Keep an eye on your mail and online IRS account for any updates or further communication regarding your case. The IRS will typically respond in 30 days with further details or next steps.
Did you Receive IRS Notice CP75 or CP75A? Call Optima
Receiving IRS Notice CP75 or CP75A can be unsettling, but it’s essential to address it promptly and provide the requested information to ensure a smooth resolution. By understanding what these notices mean and following the steps outlined in this guide, you can effectively respond to the IRS’s inquiries and safeguard your tax refund and financial interests. Remember, assistance is available if you need it, so don’t hesitate to reach out for help if you’re unsure about how to proceed. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
In the realm of business finance, debt is often seen as a double-edged sword. While it can provide necessary capital for growth and expansion, it also comes with the risk of non-payment, leading to bad debts. However, there is a silver lining for businesses facing bad debts in the form of the bad debt deduction. This article aims to shed light on what the bad debt deduction entails and how businesses can navigate this aspect of their financial landscape.
What is the Bad Debt Deduction?
The bad debt deduction is a tax deduction for businesses that allows them to deduct certain uncollectible debts from their taxable income. In simpler terms, if a business has provided goods or services on credit and cannot collect payment for them, they may be eligible to claim a deduction for the unpaid debt.
Types of Bad Debts
Not all unpaid debts qualify for the bad debt deduction. The IRS has specific criteria that must be met for a debt to be considered bad and eligible for deduction. Generally, there are two types of bad debts:
Business Bad Debts
These are debts arising from the sale of goods or services in ordinary business. To qualify as a business bad debt, the debt must be directly related to the taxpayer’s trade or business. For example, if a company sells products on credit to customers and some of those customers fail to pay, resulting in a loss for the company, those unpaid debts may be considered business bad debts. Sole proprietors can deduct business bad debts on Schedule C, Profit or Loss from Business. Partnerships would use Form 1065, U.S. Return of Partnership Income. S Corps would use Form 1120-S, U.S. Income Tax Return for an S Corporation while C Corps would use Form 1120, U.S. Corporation Income Tax Return. This deduction can be in full or just partially.
Non-Business Bad Debts
These are debts that are not related to the taxpayer’s trade or business. Examples of non-business bad debts include personal loans made by individuals or investments in non-business ventures. While non-business bad debts may also be deductible, they are subject to different rules and limitations than business bad debts. If you can deduct a non-business bad debt, it must be in full. You can deduct non-business bad debts on Form 8949, Sales and Other Dispositions of Capital Assets.
Non-business debts only qualify for capital loss treatment. This means you can deduct up to $3,000 of ordinary income per year. However, you can carry forward the debt into future years. It could take years to deduct the full non-business bad debt, but it is possible.
Requirements for Deductibility
To claim a deduction for bad debts, businesses must meet certain requirements set forth by the IRS. Some key requirements include:
The amount must have been included in your income. To claim a deduction for a bad debt, the amount of the debt must have previously been included in the taxpayer’s gross income.
The debt must be bona fide. This means that the debt must be a legitimate obligation owed to the taxpayer. It cannot be a gift or contribution to a charity, for example.
There must be an intention to collect.The taxpayer must have made reasonable efforts to collect the debt before it can be considered uncollectible. This typically involves sending invoices, reminders, and making collection calls.
The debt must be deemed worthless.The taxpayer must be able to demonstrate that the debt has become worthless and is unlikely to be collected in the future.
Limitations and Considerations
While the bad debt deduction can provide relief for businesses facing losses due to unpaid debts, there are certain limitations and considerations to keep in mind:
Timing of deduction: The deduction for bad debts can only be claimed in the year in which the debt becomes worthless. Businesses cannot simply write off unpaid debts at their discretion. They must be able to demonstrate that the debt has become uncollectible during the tax year for which the deduction is claimed.
Documentation requirements: Proper documentation is essential when claiming a deduction for bad debts. Businesses should maintain records of invoices, collection efforts, and any other relevant correspondence to support their claim in case of an IRS audit.
Recovery of bad debts: If a business can recover all or part of a previously deducted bad debt in a subsequent year, the recovered amount must be included as income in the recovery year. This ensures that businesses do not receive a double tax benefit for the same debt.
Tax Help for Businesses
The bad debt deduction can be a valuable tool for businesses facing losses due to unpaid debts. By understanding the requirements and limitations associated with this deduction, businesses can effectively navigate the complexities of bad debt management and mitigate the impact of non-payment on their bottom line. Proper documentation and compliance with IRS regulations are key to maximizing the benefits of the bad debt deduction while avoiding potential pitfalls. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
The April 18th tax deadline passed, and you did not file your tax return. Now what? First, don’t panic. Not everyone needs to file a tax return. Typically, if you earn less than the standard deduction associated with your filing status, you do not need to file a return. However, if you did not file a tax return when you were required to, you might have an issue. Here’s what happens if you don’t file your taxes.
You will be charged a Failure to File penalty.
If you did not file a tax return when you were required to, the IRS will charge you a Failure to File penalty. This penalty is currently 5% of the unpaid taxes for each month or partial month that a tax return is late, up to 25% of your total unpaid tax bill. If you are due to receive a tax refund, then you will not receive a penalty for failing to file. However, not filing may result in losing that refund. Keep in mind, a tax refund can be only claimed within 3 years of its due date.
You will be charged a Failure to Pay penalty.
If you owe taxes and don’t file your return, you will be penalized for failing to pay. In 2024, the Failure to Pay penalty is 0.5% for each month or partial month your tax balance goes unpaid, up to 25% of your total tax bill. If both a Failure to Pay and a Failure to File penalty are applied in the same month, the Failure to File penalty will be reduced by the amount of the Failure to Pay penalty applied in that month. For example, instead of a 5% Failure to File penalty for the month, the IRS would apply a 4.5% Failure to File penalty and a 0.5% Failure to Pay penalty.
Your tax bill will accrue interest.
If you do not file your taxes, the IRS will assess interest on your unpaid taxes. This is even if you do not receive a Failure to File penalty. Even worse, the IRS begins accruing this interest beginning on the date your taxes are due, which is April 15th in 2024. If you receive the Failure to File penalty, you will also incur interest on your unpaid taxes. Underpayment interest rates can change each quarter. The interest rate through June 2023 is 7% per year, the highest it has ever been. This essentially means that having a tax balance is more expensive than ever.
The IRS may file a return on your behalf.
In some cases, the IRS will file a substitute tax return on your behalf. They do this using tax documents that were sent to them from your employers and financial institutions. What they will not do, however, is try to reduce your tax liability with credits and deductions. If you still take no action, the IRS will continue processing the return and charge you any taxes owed.
The IRS statute of limitations is delayed.
Some may think that they can avoid filing a tax return for many years and the IRS will lose its power to enforce after the 10-year statute of limitations ends. However, the statute of limitations does not begin until a tax return is actually filed. This means that the unfiled tax return will essentially follow you until you file it. If you wait too long though, you risk losing out on refunds and tax credits.
What Should I Do If I Didn’t File My Taxes?
The simple answer to this question is to file immediately. The tax deadline has passed, and so has the deadline to request a tax extension. However, penalties and interest will be minimized if you file a tax return now. Some taxpayers do not file because they know they cannot afford to pay taxes they owe, but not filing and not paying only escalates the issue at hand. If you need help with your tax debt, tax relief is always an option. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
Tax season can be a daunting time for many, with the intricacies of various forms and schedules often causing confusion. Among these, Schedule R is a form that remains relatively unknown to many taxpayers. However, for those who qualify, Schedule R can be a valuable resource. It allows eligible individuals to claim the Credit for the Elderly or the Disabled. In this article, we will explore the ins and outs of Schedule R, helping you better understand its significance and how it can potentially benefit you or your loved ones.
What is Schedule R?
Schedule R is an attachment to Form 1040 or 1040-SR that specifically pertains to the “Credit for the Elderly or the Disabled.” This tax credit is designed to provide financial relief to elderly individuals or those with disabilities who meet certain criteria. The credit is nonrefundable, which means it can reduce your tax liability but will not result in a tax refund.
Who qualifies for the Credit for the Elderly or Disabled?
To be eligible for the Credit for the Elderly or the Disabled, taxpayers must meet the following criteria:
Age Requirement
You must be at least 65 years old by the end of the tax year. Alternatively, if you are younger than 65, you can still qualify if you have retired on permanent and total disability.
Disability Requirement
If you are under 65, you must have retired on permanent and total disability to qualify. The IRS defines this as being unable to engage in any substantial gainful activity due to your physical or mental condition. The condition must have lasted or be expected to last for at least a year or result in death. You must receive taxable disability income. Finally, you must be younger than your employer’s mandatory retirement age before the beginning of the tax year.
Income Limit
There are income limitations to qualify for this credit based on your adjusted gross income (AGI). Alternatively, the IRS may use your nontaxable Social Security benefits and other nontaxable income. For the 2023 tax year, you are ineligible for the credit if:
You file single, head of household, or are a qualifying surviving spouse with an AGI of $17,500 or more
You are married filing jointly and only one spouse qualifies with an AGI of $20,000 or more
You are married filing jointly and both spouses qualify with an AGI of $25,000 or more
You are married filing separately with an AGI of $12,500 or more, or total nontaxable income (social security, nontaxable pensions, annuities, or disability income) of $3,750 or more
You file as single, head of household, qualifying surviving spouse, or married filing jointly with both spouses eligible for the credit and have taxable income (social security, nontaxable pensions, annuities, or disability income) of $5,000 or more
You are married filing separately with total nontaxable income (social security, nontaxable pensions, annuities, or disability income) of $3,750 or more
Filing Status
You must file as single, head of household, qualifying widow or widower, or married filing jointly. Married individuals who file separately are not eligible for this credit. If you are filing a joint return with your spouse, your spouse must also meet these conditions.
Calculating the Credit
The credit amount itself ranges from $3,750 to $7,500 and is calculated based on a formula. It takes into account both your income and the number of eligible individuals in your household. The higher your income, the lower the credit amount, and vice versa. The IRS provides a worksheet in the Schedule R instructions to help you calculate the exact amount of your credit.
Claiming the Credit
After filling out Schedule R, you can transfer your calculated credit to Schedule 3 with Form 1040. You’ll also need to note that the credit was calculated via Schedule R. The credit amount will then be subtracted from your tax liability. Tax credits like Schedule R can help ease the financial burden for eligible elderly or disabled individuals. If you or a loved one meet the criteria outlined in this article, consider exploring Schedule R further to determine if you qualify for the Credit for the Elderly or the Disabled. As always, consult with a tax professional or utilize reliable tax software to ensure accurate filing. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
