You may be one of the many taxpayers who realize that they owe more in taxes than they have available right now.  If that’s the case, here are some tips that will help you keep your penalties and interest to a minimum.

1. Even if you can’t pay everything you owe right now, go ahead and file your return on time and pay as much as you can with the return. These steps will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest charges. You may mail a check payable to the United States Treasury or check out the electronic and credit card options for paying. IRS.gov.

2. You may want to consider obtaining a loan or even paying by credit card. The interest and penalties that are imposed by the IRS may actually be lower than the interest rate and fees charged by a bank or credit card company.

3. Ask for an installment payment agreement. You do not need to wait for the IRS to send you a bill before requesting a payment agreement. Options for requesting an agreement include:
• Using the Online Payment Agreement application and
• Completing and submitting IRS Form 9465-FS, Installment Agreement Request, with your return. The IRS does charge a user fee to set up your payment agreement. See www.irs.gov or the installment agreement request form for fee amounts.

4. As part of the IRS Fresh Start Initiative for tax year 2011, qualifying individuals may request an extension of time to pay and have the late payment penalty waived. To see if you qualify visit www.irs.gov and get form 1127-A, Application for Extension of Time for Payment. But hurry, your application must be filed by April 17, 2012.

5. If you receive a bill from the IRS, please contact them right away to discuss payment options. The worst thing you can do is simply ignore the bill.

If you can’t pay in full and on time, the key to minimizing your penalty and interest charges is to pay as much as possible by the tax deadline and the balance as soon as you can.

Daniel Stoica Accounting Professional

My guest blogger today is Dagny Kight. She has an upcoming ebook called Lower Your IRS Debt which will help individuals with a step-by-step process to determine on their own if they can settle their tax debt for a lower amount.

Are you old enough to remember when we bought magazines through the mail in the hopes that the Prize Patrol would show up with a giant check? The marketing strategies of the famous publishing house sweepstakes are perhaps best remembered by the tagline, “You may have already won!” The ambiguous catchphrase led many people to believe they were indeed the lucky winner!

Tax resolution firms make heavy use of direct mail. You may have already started receiving their letters, particularly if the IRS has filed a Federal lien against you. The envelope will be made to look official. You will be urged to “Respond Immediately! Important Information About Your Tax Debt!”

When you open the letter, in many cases it will be from a company with a generic name like “Tax Resolution Specialists” or “Tax Settlement Department.” They will get the amount of your tax debt from public records so it will look like the letter was written just for you. The letter may claim your IRS debt can be lowered to maybe a third or even a quarter of what you owe. When you’re faced with an IRS tax debt, you may want to rush to the phone and call right away for a deal that good!

The ads are very persuasive because tax resolution firms try to charge thousands of dollars. If their fee and the amount of savings they claim they can get for you are many thousands of dollars less than your total IRS debt, wouldn’t you be tempted to sign on the dotted line? That’s what tax resolution firms are counting on!

Remember these two important facts:

1. NO ONE can “estimate” what your tax savings might be without calculating your complete financial disclosure.
2. NO ONE can guarantee how the IRS will decide when they review your complete financial disclosure.

I have an upcoming ebook, Lower Your IRS Debt, which will help you calculate your own financial disclosure and submit an application to the IRS for review. No matter how you ultimately complete your tax settlement, a complete financial disclosure will be required. I’ll take you step by step through the process I used successfully to lower my IRS debt from $42,564 to $1!

Daniel Stoica Accounting Professional

Are you stressed about tax time? Does the thought of doing your taxes give you a headache?  Tax preparation doesn’t have to be painful, if you follow some basic tips.

1. Don’t put off doing your taxes until the last minute. When you rush, you are more likely to make mistakes. You may even make mistakes that could cost you money.  So start them now if you haven’t already.

2. Use the IRS website. There were more than 300 million visits to www.irs.gov last year. Go to the “1040 Central” to check for the latest news and find answers to your questions about tax filing.

3. Use Free File. Free File is available exclusively at www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $57,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers. If you made more than $57,000 and/or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms. Visit www.irs.gov/freefile for options.

4. Try IRS e-file. The majority of taxpayers now use IRS e-file, which is the safest, easiest and most common way to file a tax return. If you owe taxes, you can file immediately and pay later (by the April 17 tax deadline). Best of all, when you combine e-file with direct deposit  the IRS can generally issue your refund in as few as 10 days.

5. Don’t put off filing your taxes if you can’t pay. If you can’t pay the full amount of taxes you owe by the mid-April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. More than 75 percent of taxpayers eligible for an Installment Agreement can apply using the web-based Online Payment Agreement application available at www.irs.gov. To find out more about this simple and convenient process, type “Online Payment Agreement” in the search box at www.irs.gov.  You can also contact the IRS to discuss your payment options.

6. Request an extension of time to file – but pay on time. If the deadline clock is ticking, you can get an automatic six-month extension through Oct. 15. However, this extension of time to file, which must be filed or postmarked by the April 17 deadline, does not give you more time to pay any taxes due. If you have not paid at least 90 percent of the total tax due by the April deadline you may also be subject to an estimated tax penalty. You can obtain an extension through Free File at www.irs.gov/freefile. Or, file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, available for downloading at www.irs.gov or by calling 800-TAX-FORM (800-829-3676) to have a paper form mailed to you. Allow at least 10 days for mailed forms and publications.

Daniel Stoica Accounting Professional

Are you struggling to pay back taxes? Did you know that the Internal Revenue Service has expanded its “Fresh Start” initiative to help struggling taxpayers who owe taxes?

Part of this Fresh Start initiative allows some unemployed taxpayers to have their failure-to-pay penalties waived. Penalties are one of the biggest factors a financially distressed taxpayer faces on a tax bill. The Fresh Start Penalty Relief Initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes. Interest still applies on the 2011 taxes from April 15, 2012 until the tax is paid, but you won’t have failure-to-pay penalties if you pay your tax, interest and any other penalties in full by Oct. 15, 2012.

Here is more information about this initiative:

1. Penalty relief, as mentioned above, is available to two categories of taxpayers:

* Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to this year’s April 17 tax deadline.

* Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

To qualify for this penalty relief, your adjusted gross income must not exceed $200,000 if married filing jointly or $100,000 if your filing status is single, married filing separately, head of household, or qualifying widower. Your 2011 balance due can not exceed $50,000.

Taxpayers who qualify need to complete a new Form 1127A to request the 2011 penalty relief. The new form is available on www.irs.gov or by calling 1-800-829-3676 (TAX FORM).

2. An installment agreement is a payment option for those who cannot pay their entire tax bill by the due date. The Fresh Start provisions give more taxpayers the ability to use streamlined installment agreements to catch up on back taxes and also more time to pay.

The new threshold for requesting an installment agreement has been raised from $25,000 to $50,000. This option requires limited financial information, meaning far less burden to the taxpayer. The maximum term for streamlined installment agreements has been raised to six years from the current five-year maximum.

If your debt is more than $50,000, you’ll still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). You also can pay your balance down to $50,000 or less to qualify for this payment option.

With an installment agreement, you’ll pay less in penalties, but interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, you must agree to monthly direct debit payments.

You can set up an installment agreement with the IRS through the On-line Payment Agreement (OPA) page at www.irs.gov

3. Under the first round of Fresh Start in 2011, the IRS expanded the Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An Offer in Compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

The IRS recognizes many taxpayers are still struggling to pay their bills so the agency has been working on more common-sense changes to the OIC program to more closely reflect real-world situations.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

4. A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts,” is available on the IRS website, www.irs.gov.

The IRS website has a variety of other online resources available to help taxpayers meet their payment obligations.

Daniel Stoica Accounting Professional

Do you work out of your house?  If you do, you may be able to deduct expenses for the business use of your home.

Here are six requirements that will help you determine if you qualify for a home office deduction.

1. First of all, in order for you to claim a business deduction for your home, you must use part of your home regularly and exclusively:
• as your principal place of business, or
• as a place to meet or deal with clients, customers or patients in the normal course of your business, or
• in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.

2. The amount you can deduct generally depends on the percentage of your home that you use for business. However, your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

3. For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.

4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on Form 1040 Schedule C, Profit or Loss From Business.

6. If you are an employee, additional rules apply for claiming the home office deduction. For example, the regular and exclusive business use must be for the convenience of your employer.

To get more information about the home office deduction, check out IRS Publication 587, Business Use of Your Home, available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

You may also want to contact a tax professional to find out more about tax deductions for your home office.

Daniel Stoica Accounting Professional

The tax season is in full swing, and those who haven’t already filed may be starting to panic.

However, there is no need to panic because the IRS offers free assistance online, via telephone and in person.

Here are four resources to help you find the information that you need to file your taxes this year.

1. CLICK: The IRS website at www.irs.gov contains a wealth of tax information. You can even prepare and file your federal tax return at no cost through Free File.  Free File is a service offered by IRS and its partners who offer free tax preparation software and free electronic filing. You must go to www.irs.gov to use Free File. If you have tax questions, you can also check out 1040 Central on the Individuals page for the latest news. You can even check the status of your refund with Where’s My Refund?

2. CALL: Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers.  To hear pre-recorded messages covering various tax topics or to check the status of your refund, call 800-829-4477. To order free forms, instructions and publications, call 800-829-3676. TTY/TDD users may call 800-829-4059 to ask tax questions or to order forms and publications.

3. GET FREE HELP: Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs are provided through partnerships between the IRS and community based organizations. They offer free help in preparing simple tax returns for low-to-moderate-income taxpayers. To find a site near you, visit www.irs.gov, or call 800-906-9887. Qualified taxpayers (age 60 or older) can also find help at a local TCE site by visiting www.aarp.org or calling 888-227-7669.

4. VISIT: If you want face-to-face assistance, you can find help at a local IRS Taxpayer Assistance Center. Locations, business hours and an overview of services are available at www.irs.gov. Just go to the Individuals tab and click on the Contact My Local Office link on the left under IRS Resources.

For more information about free services provided by the IRS, review Publication 910, IRS Guide to Free Tax Services available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

You may also contact an accounting and/or tax professional.

Daniel Stoica Accounting Professional

Are you one of the individuals who is eligible for the Earned Income Tax Credit? This credit can be a financial help for people who earn $49,078 or less in 2011. Four of five eligible taxpayers filed for and received their Earned Income Tax Credit (EITC) last year.

Here are some facts and tips about the EITC.

1. Each year of your life can bring big changes. Just because you didn’t qualify for the EITC last year doesn’t mean you won’t this year, because as your financial, marital or parental situations change, your ability to qualify may change, too.

2. If you qualify for the EITC, your credit could be worth up to $5,751. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on your earned income and whether or not there are qualifying children in your household. The average credit was around $2,240 last year.

3. You must file a federal income tax return and specifically claim the credit – even if you are not otherwise required to file- if you are eligible to claim the credit. Remember to include Schedule EIC, Earned Income Credit when you file your Form 1040 or, if you file Form 1040A, use and retain the EIC worksheet.

4. If your filing status is Married Filing Separately, you do not qualify for EITC .

5. You must have valid Social Security numbers for yourself, your spouse (if you are filing a joint return) and any qualifying child listed on Schedule EIC.

6. You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.

7. Married couples and single people without children may qualify. If you do not have qualifying children, you must also meet the age and residency requirements, as well as dependency rules.

8. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.

9. It’s easy to determine whether you qualify by using the EITC Assistant, which is an interactive tool available on the IRS website.

10. Free help is available at Volunteer Income Tax Assistance sites to help you prepare and claim your EITC. If you are preparing your taxes electronically, the software will figure the credit for you. To find a VITA site near you, visit the IRS.gov website.

For more information about the EITC, see IRS Publication 596, Earned Income Credit. You can download this publication – available in English and Spanish – from this website or order it by calling 800-TAX-FORM (800-829-3676).

Here are some helpful links:

• EITC Assistant
• Earned Income Tax Credit

Daniel Stoica Accounting Professional

Do you know your tax filing status? Your tax filing status is used in order to determine your filing requirements as well as your standard deductions, your correct tax and your eligibility for certain deductions and credits.  Since there are five filing statuses, and since some people may qualify for more than one filing status, it can be confusing to determine which one is the best option for your particular situation.  The five filing statuses are Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child.

The following are eight facts about filing status that can help you choose the best option.

1.  Your marital status for the entire year is determined by your marital status on the last day of the tax year. So, even if you got married on December 31, 2011, you would still be eligible to file as Married for 2011.

2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.

4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.

5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.

6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.

7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.

8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.

You can find out more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

You may also want to speak with a tax professional about determining your tax filing status.

Daniel Stoica Accounting Professional

The IRS rules regarding exemptions and dependents affect many, if not most, taxpayers. Here are some facts about exemptions and dependents that should help you file your tax return this year.

Exemptions are fixed amounts that reduce the amount of your income that is subject to income tax, and they are on a per-person basis.  There are two types of exemptions- personal exemptions and exemptions for dependents. These two types of exemptions are for the same amount per person, but different rules apply in order to be able to claim the exemptions. On your 2011 tax return, you can deduct $3,700 for each exemption.

Your spouse can never be counted as your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.

Even if someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe. Consult the IRS website or a tax professional to see if you must file.

If you are being claimed as a dependent, you cannot claim an exemption. If someone such as your parent is claiming you as a dependent, you may not claim your personal exemption on your own tax return.

Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, in order to claim someone as a dependent, he or she must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, see IRS Publication 501 on the IRS website.

Daniel Stoica Accounting Professional

Even though your income tax return is not due until April, important tax documents will start arriving in your mailbox. Make this your best tax filing year ever by being organized and getting an early start.

Here are some tips to make the tax-filing process as smooth as possible.

1. Put your records together in one place. Gather up your receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.

2. Watch for your W-2s and 1099s in the mail and put them with your receipts and other supporting documents.

3. Check out Free File. If you made $57,000 or less last year, you qualify to use free tax software. Visit www.irs.gov/freefile to review your options.

4. Plan to use IRS e-file. If you are getting a refund, you’ll most likely receive your refund by direct deposit within 14 days if you e-file. E-file is safe and easy and is now the most common way to file a tax return.

5. Choose direct deposit. When you choose direct deposit, especially when you pair it with e-file, you’ll receive your refund in the fastest possible time. Plus, there’s no chance of a check being lost or stolen. Last year, thousands of refund checks were lost or stolen.

6. Read the Tax Guide. Everything you ever wanted to know about filing your 2011 taxes is in the booklet here: http://www.irs.gov/pub/irs-pdf/p17.pdf

7. Visit the IRS website. www.irs.gov contains forms, publications, tips, videos and FAQs.

8. Consider using a tax professional. Although you will be charged a fee to use their services, qualified tax professionals will ensure that your returns are accurate and that all options for tax deductions and tax credits have been explored.

Daniel Stoica Accounting Professional
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