What Tax Terminology You Need To Know

While you’re striving for knowledge about how the tax world operates, you must have heard or read some terms that you’re unfamiliar with or confuses you. For average taxpayers, it is not that easy to understand the differences between terms that might look alike or might include the same words. Even if you have a tax professional that you can lean on, it pays to know basic terms used in the tax industry. This is to help you understand how your taxes are being calculated, what deduction you can get, or just to understand what your expert is trying to say. Read on for some of the words you need to know.
Adjusted Gross Income (AGI) – This is the total amount of income you received on a single year minus itemized deductions such as medical expenses, moving expenses, contributions to qualified IRA, alimony payments, and student loan interests. Those adjustments or deductions can be claimed even if you do not itemize.
Gross Income – Don’t confuse this with your AGI. Gross income is the total amount of your income before any deductions. This can be in form of cash, services, property and goods that is not exempt from taxation.
Taxable Income – Taxable income is your AGI minus your standard or itemized deductions and personal exemptions. Your taxable income can be found on line 43 of your 1040. It goes without saying that your taxable income should be lower than your AGI.
Standard Deduction – Standard deductions is a fixed dollar amount that you can subtract from your income. This is available to all filers and the amount can be determined by their filing status. This rate, however, changes every year due to inflation adjustments. Standard deductions are used by those taxpayers who do not prefer the itemized deduction.
Itemized Deduction – Itemized deduction, on the other hand, is an option to get deductions for medical expenses, charitable donations, theft and casualty loss, home mortgage interests, and miscellaneous deductions. Itemized deduction cannot be claimed if you already chose standard deduction. If you chose to itemize, you must file the Form 1040 and detail your tax deductions on Schedule A.
Tax Credit – This credit is used to directly reduce your tax owed. Tax credits are more valuable because it directly reduces the amount you need to pay Uncle Sam instead of reducing the taxed income. For example, your tax bill of $2,000 will be down to $1,500 when a tax credit of $500 is applied. Couple of tax credits can even give you a refund once it exceeds your tax bill.
Withholding – This is the process by which you automatically pay your taxes as you earn your income. Employers set this up so that every time you receive your salary, there is already a certain amount that is withheld every period for your taxes. If you or your employer over-withheld your taxes, you will receive a refund.
Exemption – This is the amount a taxpayer can be free from paying. This can be for himself or herself, spouse and eligible dependents. The total of your exemption is then deducted from your adjusted gross income before tax is calculated based on your remaining taxable income.
You don’t have to absorb and understand all these overnight. These terms and the tax world in general are really confusing. However, it is ideal to have basic knowledge of the terms being used in the industry. Also, it is highly recommended to hire a professional who is more fluent in this language to help you organize your taxes and be aware of what is going on. Having an experienced tax professional by your side can be very vital once the numbers, or even words, gets too confusing.

tax time

Tax Time: End the Dread

Maybe there isn’t a specific phobia name attached to the condition, but many people suffer from an irrational fear of facing their annual taxes. This tax season, lay your financial fears to rest with a free consultation from a knowledgeable tax attorney or resolution professional close to home.
It happens every year shortly after you hang the new calendar on the wall. The financial statements start arriving in the mail and you begin to panic about getting your taxes done. Well, enough already. Whether you have complex tax issues that send you scrambling for answers or you’re simply fed up with facing the filing alone, why not take advantage of a free consultation with a nearby tax professional?
That’s right. Many tax attorneys and resolution specialists today will sit down and review your specific financial situation with absolutely no fee for the initial appointment. Here’s your chance to present the particulars of your current case and see what a trained and experienced tax advocate can actually do for you. So if you’re an individual grappling with back tax returns or a business owner seeking tax debt relief, you’ll be able to quell your seasonal fear and face even your worst tax problems with new found calm and confidence.
Dealing with IRS tax resolution can be especially scary for taxpayers who lack the necessary know-how to deal with these types of complex problems. After all, issues such as back taxes can lead to stiff penalties and costly consequences including wage garnishment, property seizure, and steep interest and fines. In no time at all, you could find yourself up to your neck in debt, and all because of errors on your tax forms that could have easily been prevented with the counsel of a qualified tax law attorney. Make this the year you get the back tax help you need with expert guidance on such effective remedial strategies as:
· Offers in compromise
· Penalty abatement
· Instalment agreements
· Innocent spouse relief
· And others
Having an experienced tax advocate in your corner can make a tremendous difference as you navigate through the complexities of the latest tax codes. From IRS audits to delinquent payroll taxes, each troublesome tax matter must be handled in a precise and timely manner in order to achieve the best possible outcome for you and your finances. So don’t head down that risk-riddled road alone. Even if your financial house is in order and you’re simply searching for tax filing assistance to get every dollar and deduction you undoubtedly deserve, contact your local tax specialist today to make an appointment for a free consultation. Because hanging up your calendar should bring the promise of a new year, not the dread of having to do your taxes.

Eliminating Myths on Tax Resolution

Making the decision to take control of your finances and commencing on the journey of tax resolution can be petrifying and it is easy to become paralyzed with fear leading one to become susceptible to inaccurate or even deceitful information presented to you. There are many firms who may perpetuate myths in order to drum up business but there are also numerous ethical tax agencies available to assist with resolving tax problems. It is important to be aware of the myths that exist.

MYTH 1: You only have one opportunity to resolve any tax liabilities with the IRS
FACT: This statement is false and is used as a marketing tool to prompt clients to act instantly. The Tax Increase Prevention and Reconciliation Act of 2005 made changes to the program and now allows for lump-sum offers and periodic offers. Although tax resolution is not a once off event it is however the duty of the tax professional to provide sufficient education to rehabilitate delinquent taxpayers and change the negative financial patterns.

MYTH 2: When you owe the IRS and have a negative cash flow it is easier to qualify for an Offer in Compromise.
FACT: Whilst the IRS has the jurisdiction to negotiate federal tax liabilities by accepting reduced payments in some situations this is done circumstantially when the taxpayer can prove that they have no income or do not owe any tax. The IRS will consider factors including the taxpayer’s collection potential and equity in assets and disposable income. Therefore even if a taxpayer is living pay check to pay check with a considerable tax debt, the IRS may still legally collect the full amount owed by the taxpayer.

MYTH 3: It is recommended that you work with a tax firm that has ex-IRS agents in their employ.
FACT: Enrolled Agents (EA’s), and Certified Public Accountants (CPA’s) are professionals with the knowledge and experience required to represent taxpayers and have been representing clients before the IRS. Not only attorneys and CPA’s unrestricted in their representation but they are also authorized to practice in any IRS offices. The key to selecting professional help is to look for integrity and expertise in tax resolution planning. While the IRS does help with understanding the tax process, it does not always guarantee expertise in tax resolution planning, which is a key element of the process.

MYTH 4: Being overwhelmed in debt qualifies you for a “pennies on the dollar” resolution
FACT: You should avoid companies who use the Offer in Compromise strategy as a selling point. This is a grossly oversold technique to entice people with financial problems and there is no guarantee that you will qualify. People with consumer debt who have assets or future income will not qualify. Expenses such as credit cards and cable television bills do you qualify as allowable expenses for the tax resolution process.

MYTH 5: Large tax firms are more efficient and cost less than local enrolled agents, CPAs, or tax professionals.
FACT: There is not data to support this myth. The cost, expertise and level of service and professionalism varies between firms. If you are actively involved in the tax resolution process and begin to take control of your financial future you will find the most cost effective solution, whether you embark on the journey solo or seek the services of a professional tax representative.

How Tax Relief Services Work

What to expect from a Tax Resolution company?
Most tax professionals work under tax relief companies. Therefore, hiring them is equal to hiring the services of the company; I guess that is obvious. The benefits associated with these services far outweigh the cost. These companies offer a wide variety of tax resolution services, thus the services you will use is dependent on your financial situation, your conformity with the IRS, and other specific factors in your case. So, you will expect:
Free tax consultation
A majority of tax resolution services offer free consultation, whereby you will consult a tax relief representative. Normally, the consultations last for about 30 minutes during which you the tax expert will inquire a lot regarding your current financial situation and tax status to determine the option that will be suitable for you.
After which you will be capable to comprehend the services and benefits that you stand to get by asking for their representation in your case and the amount of money that you will have to part with for their services. Finally, they will grant the choice of hiring the firm and they can start getting you into full conformity with the filings of IRS and start the resolution process.
After hiring a Tax Resolution Company
After deciding on the firm to help you on your case, they will assign you a qualified tax professional/expert. Tax professionals are of three types: CPA, tax professional, or enrolled agent. Depending on the gravity of your case, they may assign several to you. Normally, after that you will have to sign a power of attorney to consent to them representing you in your case before the IRS. This will also empower them to ask for your records from the IRS. Everything else that follows this will now be between the tax relief firm and the IRS.
The beginning of Tax Resolution & Settlement Process
During this process, you representatives will first make sure that you are in full conformity with all the tax filings. It is crucial that the tax filings are updated and filed properly, to come to a decision or settle taxes (almost impossible). Once you are fully in compliance, the experts will then look for the best practical resolution method, which can be offer in compromise, innocent spouse relief, installment agreement, or penalty abatement, that they consider the IRS will agree to, bearing in mind your current financial situation and without putting too much monetary stress on you. This might take some time due to the slow pace the IRS moves with. However, at the end of the day, they will come to a suitable solution.
Settlement is approved and you are in Full Compliance
Immediately the IRS approves your filings, the resolution is complete and you can be certain that IRS will be off your back completely. Your account will always be in good relation with the State or IRS if you continuously comply with them on your future filings and observe payment deadlines. In addition, the tax professional will advise you on methods to ensure that you avoid future tax problems.

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How to Choose the Right Tax Help

So you have found yourself in a bind with the tax man. Perhaps you’ve fallen behind on your filing, or your business can’t keep up with its monthly payments, or like millions of businesses you’ve run afoul of the rules regarding payroll taxes. Whatever your situation (believe me, there are countless stories of taxpayers in debt and how they got that way) I think it’s comforting to know that you’re not alone. Nor do you have to go it alone. There are various means of getting help, from free resources to full-on legal representation. But how do you know what’s right for your situation? And what is the best value that matches your needs? Before someone ‘sells’ you something you don’t need, get to know your options so you can make an educated, informed decision.
Free Options
If your problem is with the Internal Revenue Service, you may want to start by contacting them directly. While they are in the business of collecting taxes, they also have a wealth of information that may get you started in the right direction.
The downside of reaching out the IRS is that while they strive to be helpful, their objective is still to collect back taxes, as much and as fast as possible. They have an obligation to be honest and forthright but still you can’t expect the IRS to lay out every possible option or to fight on your behalf.
Tax Attorneys
Tax attorneys represent the other end of the spectrum. They are the ideal representation if you are concerned about litigation related to your tax problem. If you are being accused of breaking a state or federal law in regards to your tax liability and need someone who can represent you in court, a tax attorney is your best (and perhaps only) option for help.
The downside is the price of such help. Quality representation is costly, but when weighed against the option of potential jail time it can be a worthy expense.
When trying to select someone to represent you remember experience counts. You want someone who has dealt with situations just like your countless times. This is why a typical litigator or contract attorney may not be your best option. Tax codes are complex and you don’t want someone learning on the job, no matter how much you trust them.
There are many tax attorneys and choosing the right one doesn’t have to be difficult. You want to select one that is local, so they can physically represent you in court. Shopping by price may not garner the results you intend, as most attorneys charge a retainer, and if the retainer is low, they many simply request additional funds to continue your representation. Your best option is probably to get a reference from a person you trust because someone who has already worked with an attorney can give insight to their capabilities. There are also local attorney referral sources or websites where information about attorneys and firms can be found, also the attorneys are rated, which helps provide some guidance about their ethics and practice.
Tax Resolution Firms
There are many companies that fall under this category. They may be a local firm or work nationwide, but either way a tax resolution firm is good option for those who are facing a serious tax liability and are not getting the results they want, and don’t feel like they are getting things resolved on their own. When the tax authorities begin the collections process (filing tax liens or tax warrants, visits / phone calls from revenue officers, etc.), it may be time to looking into professional help firms such as these provide. Tax resolution firms employ tax attorneys, certified public accountants and Enrolled Agents (an Enrolled Agent is someone who is certified to handle tax problems by the tax authorities) and often have ample experience in representing businesses and individuals to the IRS.
Tax resolution firms make a lot of sense because they bring a balance between experience and cost. A good firm will have associates with years of experience and a successful track record, and their cost comes well below what a tax attorney would charge. While they are staffed with attorneys, tax resolution firms cannot represent you in a criminal case or civil case where you intend to go to court.