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Past-due returns, part 2: steps you can take to resolve tax debt

In the first part of this post, we began discussing the issue of past-due tax returns. As we noted, there are several actions the IRS can take against you when you don’t file. These include filing a substitute return and initiating collection proceedings.

In this part of the post, we will discuss the role a tax attorney can play in helping you address issues of past-due taxes.


Past-due returns, part 1: why it makes sense to to file now

Trying to minimize problems by avoiding the subject is a natural human tendency. Virtually all of us do this to some degree in various aspects of our lives.

But when it comes to filing your taxes, it is important to address the issue head-on. In this two-part post, we will discuss past-due tax returns, the consequences of failure to file, and steps you can take to resolve the situation.

Tax withholding: a few tips from the IRS

With less than two months left in the year, the coming of another tax season is already on the horizon. It's a time to take actions that may be necessary in order to avoid unpleasant encounters with the IRS down the road.

In this post, then, we will take note of a few tips on tax withholding the IRS recently offered for taxpayers to prepare for the inevitable tax-time in the new year.

Selling your home? Know the tax consequences.

Tax implications are deeply interwoven into the experience of home ownership. The tax deduction for home mortgage interest ensures that this is the case.

But the deductibility of mortgage interest is not the only tax issue that can affect homeowners. For one thing, the taxation of mortgage debt relief following a foreclosure or short sale has been an ongoing issue in recent years. We discussed that issue in our September 16 post.

In this post, we will discuss a question that invariably comes up when a house is sold. How much of the profit from the sale of a home can be excluded from income?

More on taxation of retirement accounts: adjustments for 2015

One of the most fundamental aspects of tax planning for many people is maximizing the tax-shielding features of their retirement savings. This includes pensions, 401(k)s and individual retirement arrangements (IRAs).

There are of course very specific rules about the tax treatment of these accounts. These rules govern contributions, withdrawals and other administrative aspects of the accounts.

These rules have never included overall limits on the amount that can be accumulated in an IRA account. But as we discussed a few weeks ago, in our October 1 post, Congress has recently been considering imposing such limits.

In today's post, we will update you on a different aspect of IRAs: cost-of-living adjustments for the upcoming tax year that will affect such things as yearly contribution limits for 401(k)s and other retirement accounts.

Cash payment to an IRS auditor does not make an audit go away

A chiropractor in Lowell recently pleaded guilty to charges of bribing an Internal Revenue Service auditor. According to allegations in the complaint, the man paid $5,000 in cash to an IRS auditor to sign off on an audit.

The man had hoped that the auditor would ignore two false deductions made on his 2011 and 2012 tax returns. These business deductions were actually payments to several female patients who accused the chiropractor of inappropriate touching during their treatments.

In any tax audit, the IRS reviews financial and account information to make sure that has been correctly reported. An audit is also used to verify that the amount of taxes assessed is accurate. This post will discuss how the IRS selects returns to audit and the audit process.

Is a lawsuit settlement taxable income?

The answer depends heavily on the classification of the award. The tax consequences vary based on whether the damages cover lost wages, pain and suffering or a physical injury.

In general, if you win a lawsuit or negotiate a settlement the amount you receive is taxable according to the definition of gross income. As with many things in the tax code, there is an exception to the general rule. Damages tied to “personal physical injuries of physical sickness” are excluded from income. The Internal Revenue Service views this exception narrowly.

Are new limits possible for individual retirement accounts?

Currently, no limits exist to the amount a U.S. taxpayer can accumulate in an individual retirement account. A recent report from the Government Accountability Office found that roughly 9,000 individuals have more than $5 million saved in IRAs. The value of a 314 accounts tops $25 million. However, the vast majority of IRAs contain less than $1 million.

At a hearing earlier this month, Senate Finance Committee Chairman Ron Wyden expressed concerns that “the IRA was never intended to be a tax shelter for millionaires.”

New IRS rule simplifies rollover of after-tax 401(k) funds

If you have recently changed jobs, one important step is to rollover retirement savings from a company sponsored 401(k) plan into an Individual Retirement Account or Roth IRA.

Last week, the Internal Revenue Service issued new rules that allow you to roll any after-tax money in your 401(k) plan into a Roth IRA. The benefit for doing this is that the money can grow tax-free. In many cases it will no longer be necessary to pay taxes on the distribution to account for the percentage of pre-tax money in the 401(k).

Congress may extend mortgage relief for principal write-downs

Homeowners with underwater loans face the possibility of a large tax bill if they obtain a principal reduction through a deal with their lender, a foreclosure or a short sale in 2014. Congress recently returned from its summer vacation and now many wonder whether legislators will pass relief for struggling homeowners.

Bank of America recently agreed to a settlement with the U.S. Department of Justice over toxic loans, which includes borrower relief through principal write-downs. The problem is that the tax code treats the amount forgiven as ordinary income. For example, a $10,000 reduction in principal could result in a surprise tax bill and federal tax lien if you cannot pay. A temporary exception to the general rule had been in effect, but expired December 31.

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