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Danbury Tax Law Blog

Problems with payroll taxes could lead to personal liability

If a company has employees, then the employer must pay certain taxes to the IRS on behalf of each employee. If you are the person within the company responsible for paying these amounts, then you probably fit into the IRS' definition of a "responsible party."

In this role, you face personal liability if payroll taxes are not paid and properly reported. Even if all you do is remain in contact with an outside company who handles your company's payroll taxes, the IRS still holds you responsible if that company fails to make your payments or fails to make the correct payments, so it's important to keep informed.

Tax evasion resolution: The Chrisley case

Earlier this year, the couple behind a relatively popular television show was accused of committing tax crimes at both state and federal levels. Recently, the "Chrisley Knows Best" stars were able to settle the tax evasion charges filed by their former home state. They have yet to resolve the federal counts against them. Why does this couple's story matter? It shows Connecticut residents that fighting accusations of tax evasion is possible.

According to a recent report, the Chrisleys were accused of failing to pay roughly $2 million in taxes over eight years. The couple has and continues to maintain their innocence. An investigation into the matter, at least at the state level, found that the couple actually overpaid for several years and was even due a refund for taxes paid between 2013 to 2016. They ultimately settled their case with the state and will pay just shy of $150,000 for taxes they failed to pay between 2008 and 2016, allegedly by mistake.

Tax avoidance is not a crime

Most Connecticut residents do what they can to lower their tax liability every year. There are a number of ways they can do this that are perfectly legal. Tax avoidance is very different than tax evasion, and it is not a crime.

Tax avoidance is where an individual uses various legal methods to adjust his or her financial situation, which ultimately lowers how much income tax he or she has to pay. What are these legal methods? They are claiming all available credits, deductions and exemptions. Lawmakers encourage tax avoidance.

Thinking about seeking an Offer in Compromise?

Do you owe the Internal Revenue Service more money than you can pay at present? If you do, you are not alone. Numerous Connecticut residents find themselves in this position every year. Thankfully, you may be able to seek an Offer in Compromise in order to resolve the tax debt.

What exactly is an Offer in Compromise? It is an agreement made with the IRS that you will pay a portion of the debt you owe in installments and the rest will be forgiven. Sound too good to be true? It is not something that the IRS agrees to lightly. In fact, they refuse most Offers in Compromise requests.

Have a tax problem? Don't ignore it; take swift action

After filing personal taxes, the Connecticut Department of Revenue and the Internal Revenue Service have several years in which they can look for issues with one's filing and seek more money. When an unexpected tax bill arrives in the mail, it can be rather stressful. Those who believe a mistake has been made might be tempted to ignore the tax bill, but that will only cause problems. If a tax issue arises, it is best to face it head-on as swiftly as possible.

Recently, a story was shared about a woman in another state who was sent a $216 million tax bill. Based on her income level, it was clearly a mistake. It turned out, a glitch with the popular online tax preparation software she used to file was to blame. Her state's DOR did not catch the issue right away, but eventually, it was learned that this glitch affected several others as well. Those affected have been given the opportunity to re-file or amend their 2018 returns.

Actions you could face penalties for from the IRS

Paying taxes is something that most Connecticut residents know they have to do but would rather not do. Even so, you and those individuals do what you can to comply with the law.

Unfortunately, mistakes happen. The IRS may understand this, but this does not mean it won't take some form of action against you. If you make one of the following mistakes, you could end up facing penalties.

Don't forget to pay taxes on CVC transactions

Convertible virtual currencies have been around for a while now, and there are likely numerous Connecticut residents who have some in their financial portfolios. In 2014, the Internal Revenue Service released a statement saying all CVC-related transactions need to be reported when filing taxes. Up until now, the IRS has been relatively lax on enforcing this rule, but that is changing. It is said that the IRS will be purposefully targeting CVC users to ensure they are meeting their full tax liability.

Some people like to buy CVC and save it for a rainy day. Other people like to use it as their currency of choice. Any time a CVC is used in a sale, purchase or trade, the transaction has to be recorded and reported to the IRS. For people who use this currency regularly, that may seem like a significant imposition.

What to do if the IRS comes calling

A typical day can quickly take a negative turn just by looking into one's mailbox. The Internal Revenue Service, if it sees an issue with one's tax return, makes contact via mail. The letter received will give one vital information about the potential problem, or the amount allegedly owed, and who to contact about it. Some people may choose to just pay and be done with the whole thing, while other Connecticut residents may want to question the IRS. Thankfully, those who wish to do the latter do not have to do it alone.

When the IRS says a person owes money and that individual lacks the funds to meet his or her obligation, he or she may have payment options to help relieve the burden. Not everyone can pay a massive tax bill upfront. There are different programs that one might qualify for that would allow one to make smaller payments overtime -- payments that fit within one's available budget.

The how to's of paying income tax quarterly

Certain Connecticut residents have to pay their taxes, not just once but four times a year. Freelancers and business owners typically do not pay taxes with every paycheck. If they make over a certain amount in a year, they must pay estimated income taxes quarterly or face having to pay penalties on top of what they owe.

How does one go about paying taxes quarterly? Most people can do this online. Others may wish to mail in their payments. These payments can be made via check, bank draft or credit card -- though, there is a fee for using a credit card.

A bit about use tax and how it affects business owners

In Connecticut, business owners have to pay various taxes to the state. Failure to pay all applicable taxes can have significant consequences. There is one type of tax that some may not understand or think applies to them, and that is use tax. This week, this column will discuss a bit about use tax and how it varies from sales tax. 

Sales tax is the money collected by business owners on items that the state requires to be taxed. This money is then forwarded on to the Department of Revenue. Use tax, however, is money business owners need to pay for items they purchase in or out of state, for use in state, only if the retailer collected no Connecticut sales tax. 

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