Baker Law Firm, P.C.
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Danbury Tax Law Blog

Income tax and the offer in compromise

Connecticut residents who owe a substantial amount in taxes for either the current tax year or as a result of owning back taxes may feel overwhelmed at the thought of trying pay the IRS. If one lacks the funds to pay everything off all at once, it is easy to feel somewhat trapped and defeated. Thankfully, there are options out there to help individuals in just this kind of income tax situation. One great example is an offer in compromise.

An offer in compromise, if it is something for which one qualifies, allows a person to settle his or her tax debt for a lesser amount than what is actually owed. This is not something that is available to everyone. It is only an option for those who can show that paying their full tax debt would create a financial hardship or for those who truly lack the means to meet their tax liability.

Don't let income tax in retirement be your undoing

Planning for retirement is not always easy. How does one know if he or she really ever has enough money put aside? It is hard to know for sure, especially if one fails to consider income tax requirements. There are hidden tax burdens in retirement that numerous Connecticut residents may not know about, and it could be their undoing.

Retirees may have several sources of income, including Social Security, retirement funds, property sales and inheritance. When it comes to Social Security, whether it is taxed and how much will depend on how much one's combined income is. Combined income is determined by adding one's adjusted gross income, non-taxable interest and half of one's Social Security benefit. Federal and state income taxes may take a bit out of one's Social Security benefits.

Tax crimes do not pay

A woman in another state is going to prison after being found guilty of preparing and filing false tax returns. The moral of this story is simply this: tax crimes do not pay. Connecticut residents who find themselves facing or potentially facing criminal charges over tax filings could help themselves by seeking legal counsel as soon as possible. 

According to a recent report, the 61-year-old woman has been a tax preparer for quite some time. Numerous people turned to her for her ability to get higher than usual tax refunds for her clients. For this, they were willing to pay a premium for her services. Unfortunately, what her clients did not know at the time is that she was filing false tax returns in order to get those higher refunds. 

Tax audits Q and A

Connecticut residents who receive word that they are being audited by the Internal Revenue Service may have a lot of questions and concerns. This is completely understandable, as it can be a frightening thing if one has never been through it before. This week's column will address some common questions people may have about tax audits.

Question number one is: Why me? A person may be audited because he or she was picked at random, because he or she has some type of relationship with someone else picked for an audit -- such as an investor or business partner -- or because an error was noticed on his or her tax return. In other words, sometimes there is no rhyme or reason to it, and sometimes there is.

Taxes play a significant role in dividing retirement in a divorce

One of the best things about building a retirement or pension plan is that you don't incur any tax liability as it grows. Of course, you will have to pay taxes once you start drawing on it when you reach retirement age, but in the meantime, you can accumulate as much money as possible for the days when you stop working.

That is, unless you get a divorce. Your spouse may be entitled to a portion of your retirement plan. This puts you in jeopardy of paying the tax penalty for an early withdrawal when you transfer the agreed upon or ordered amount to your ex-spouse.

Property deduction caps will affect income taxes

Property deduction caps were recently implemented in Connecticut and other high property tax states. Many believe this to be unfair and are looking for ways around these new limits. While this deduction cap may hurt one's income taxes, skirting the system may cause more harm than good.

The Internal Revenue Service recently issued a warning to taxpayers who utilize workarounds for this deduction cap. Some states have passed legislation, allowing homeowners to pay property taxes to specific charitable organizations, allowing them to claim them as charitable deductions that do not have the same cap as the property tax cap. According to certain lawmakers, such a workaround is still tax evasion.

Sales tax overview

Business owners -- whether they are based in Connecticut or elsewhere -- have a lot of tax concerns compared to the typical person. Not only do they have to worry about filing their own income and business taxes, they also have to worry about making sure they collect and pay appropriate sales tax. This week's column will be a quick overview of sales tax basics.

When people buy goods or services, the government requires them to pay a consumption tax. This is also known as sales tax. The tax is paid to the business and then the business owner has to pay the government. As there are often numerous companies in the chain of supply for any given product, it is possible for certain businesses to avoid sales tax by obtaining a resale certificate -- meaning they are not the ones selling directly to consumers. The businesses that sell the product directly to consumers are the ones who have to charge and collect sales tax.

Connecticut tax evasion: failure to fully report income

If a person fails to fully report his or her income and pay the proper amount in taxes, the government is likely to find out. The Internal Revenue Service does not take tax evasion lightly. While it may take time, Connecticut residents who intentionally, or unintentionally, underreport their income in order to pay less in taxes are likely to hear from the IRS eventually.

There are two ways in which a person may underreport his or her income. The first is by simply claiming to make less than he or she actually did during the tax year. The second is by claiming more credits, deductions and exemptions than one should.

Self-employment income tax -- things to know

There are quite a few Connecticut residents who are self employed. While this type of job status can grant them some freedom, when it comes to income tax, they may find that they are subject to different standards than those who work for others. Here are a few things that people should know about self-employment income tax.

A self-employed individual is someone who owns his or her own business, works as an independent contractor, or is a partner in a business or trade. Those who meet the definition of being self-employed generally have to pay a lot more in taxes -- but it all comes down to one's profits and losses. Losses can be deducted, lowering one's tax liability. 

Is the IRS saying you failed to pay your payroll taxes?

When you started your business, you knew that you would have a significant amount of paperwork to take care of, including payroll for your employees. Part of your responsibilities when it comes to paying your employees is making sure that you submit the appropriate amount of payroll taxes to Connecticut taxing authorities and the IRS.

Payroll taxes encompass several different types of taxes that you are obligated to collect from your employees. Knowing what to collect, along with how much to collect, is only the first step. You are then responsible for paying those amounts to the IRS and the state.

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