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Danbury Tax Law Blog

Tax liens can affect more than your property

Connecticut residents who fail to pay their taxes can face a number of penalties. Tax liens, for example, allow the government to make claims on property so, in the event the property is sold, the proceeds will go toward one's tax debt. Those who think tax liens are kept private have another thing coming. They are a matter of public record and can affect far more than one's property.

Tax liens are reported to credit agencies. This means that one's credit score may drop and the ability to retain credit is significantly reduced. Information about tax liens or sales may be published, meaning one's personal reputation may be jeopardized. Finally, a tax lien may show up on background checks, which can affect one's ability to get a job.

Congress works to soften IRS reputation

Dealing with the IRS is rarely an enjoyable experience. After all, you may owe them a sizable portion of your earnings each year, and if you fail to pay it, you face some harsh penalties. Additionally, you may have to handle inflexible tax laws, the chance of an audit and the overall stress of dealing with the IRS.

While it may not lower your tax bill, Congress recently passed the Taxpayer First Act, which suggests some important changes in IRS operations that could make your encounters with them a little less painful. It starts with compelling the agency to develop a plan to improve customer service. More importantly, Congress is asking the IRS to make sensible changes to their enforcement of tax codes and to take better precautions to protect your personal information.

When you cannot pay your tax debt

Come tax time, all Connecticut residents hope that they will have the ability to pay their tax bills. Unfortunately, some cannot. Having tax debt is something that can weigh on a person's mind and pocketbook, as the longer tax debt is carried, the more one will owe in interest and penalties. Something many people may not be aware of is that the Internal Revenue Service has collection standards it must abide by when a person is unable to meet his or her tax liability.

The Collection Financial Standards are broken down into general, national and local categories. When looking at a person's ability to pay tax debt, the IRS will look at his or her general living expenses. If one's disposable income after providing for one's health and overall welfare is insufficient, a repayment plan will need to be created that fits within that individual's budget.

Having a good tax preparer matters

While there are a good number of people in the United States who complete and file their taxes on their own every year, there are many more who trust so-called professionals to help them. Having a good tax preparer matters if one chooses to go this route. Here are few tips that may help Connecticut residents determine if their tax preparers or potential tax preparers are right for the job.

Tip number one: Avoid big promises and hidden fees. There are a number of tax preparers out there who like to make big promises but at the same time try to hide information about their fees. They claim that they can get their clients big refunds and may even offer prizes for using their services. At the end of the day, a good and trustworthy tax professional will not make big promises and will be upfront about what it is going to cost to use their services.

Lawmakers considering change to how sales tax is collected

Business owners in Connecticut have a lot that they have to worry about when it comes to taxes. Lawmakers are considering a change that will give them even more to stress over. According to a recent article, there is a bill currently under review that includes a provision for real-time sales tax collection. How would that work and at what cost?

An excerpt from the bill basically says that business owners who utilize credit card services for payment will need to have the companies processing those payments pay sales tax directly to the state almost immediately. It says specifically that they will be given 24 hours to send the sale tax owed on any given electronic payment. This real-time sales tax collection, if it is passed, would take effect in July 2019. This gives business owners very little time to prepare.

Will Connecticut's wealthiest residents soon see tax increases?

Connecticut is in the midst of a financial crisis. Some believe that raising taxes on the wealthiest residents would solve this problem. However, some worry that doing so will only cause these residents to pack up and move elsewhere. A plan to increase the tax rates of wealthy residents has been proposed. Only time will tell if it will be put into effect.

According to a recently released article, 10 of the state's wealthiest residents have reportedly submitted a plan to the Governor and general assembly, outlining what they believe would solve the state's financial problems. They are suggesting changing the tax brackets for those who make $500,000 or more per year. The tax raises would range from 1% for the lower income earners in this group, to 3% for the top earners. They say this plan would generate roughly $1 billion in desperately needed revenue.

The basics of taxes and Roth IRAs

Like other Connecticut residents, you may be wondering how to fund your retirement. You may decide to participate in your employer's 401(k), which uses pre-tax dollars to fund. This means that you will owe taxes on withdrawals when you reach the qualified age. In addition, you could owe a penalty tax if you make early withdrawals.

Another option is to take out a Roth Individual Retirement Account. You fund this account with after-tax dollars, meaning that you already paid taxes on the contributions. This provides an advantage when you make withdrawals since they are generally tax-free. This may seem like a win-win scenario since you won't owe taxes on amounts you take out of the account during your retirement years, but in some situations, you could owe taxes.

How does the IRS contact people about tax audits?

Have you ever received one or more phone calls supposedly from the Internal Revenue Service? Most of these calls have to do with being past due on tax payments rather than tax audits, but they are scary nonetheless. If you do receive phone calls from someone claiming to work for the IRS or an automated message saying you have a tax problem, you're best just hanging up, as the IRS does not make it a habit of contacting Connecticut taxpayers that way.

So, how will you know if there is a problem with your taxes? You will get a letter in the mail. It will come on a statement with the IRS letterhead, and it will give detailed information about what is going on. For instance, if you are being audited, the letter will specifically state what paperwork the IRS needs from you to complete the audit, how long you have to comply, when a face-to-face meeting is scheduled -- if applicable -- and the name and contact information of the agent working your case.

How do nonprofits become exempt from federal income tax?

There are a lot of businesses in the state of Connecticut that claim to be non-profit. Non-profit can mean a number of things, but here it will be used to specifically discuss the income tax benefits offered to charitable organizations. What types of charitable organization can qualify for tax exemptions, and how can they obtain that benefit?

In order to qualify as a charitable organization, the business must receive the majority of its income from the government or the general public. In order to receive tax-exempt status, such organizations must apply for what is known as 501(c)(3) status. In order for one's request to be approved, it will be necessary to show the government that:

  • One's organization is to be used for exempt purposes only.
  • One's organization does not work to benefit any private interest.
  • One's organization will limit its political activities.

Failure to pay tax debt can have significant consequences

While most Connecticut residents filed and paid their taxes on time, there are those who found themselves unable to meet their tax obligations this year. It can happen to anyone. How one decides to deal with tax debt is what matters in this type of situation.

Some people do wonder what would happen if they simply fail to pay their taxes. The truth is, a lot can happen. The Internal Revenue Service is not going to let tax debt slide. It will do whatever it can to collect. The IRS can place liens on property, have passport applications denied, tack on interest and penalties and seize property -- among other things.

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