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Offer in Compromise FAQs

If you’re staring down a tax debt you can’t possibly pay, it’s time to consider an IRS Offer in Compromise (OIC). This option lets qualified individuals settle their tax debt for less than the full amount owed, offering a financial lifeline when times are tough.

Contrary to popular belief, Offers in Compromise aren’t a pipe dream. The IRS approves over 40% of these applications, with the average settlement exceeding $10,000. Not too shabby, right?

❓ How to Know if You Qualify

Generally, there are three factors that are considered by the IRS when somebody applies for an Offer in Compromise. Most commonly, the IRS must have a belief that you will not be able to pay your tax debt off at any point in the near future. This means that your financial situation is probably not going to improve anytime soon and that the IRS would not likely be successful in forcing collections on you.

At the end of the day, the IRS needs to believe they are getting a fair deal – so if you have any potential to pay your debt at any point in the near future, you may not qualify.

You might also qualify for an Offer in Compromise if there is doubt as to your actual tax liability; if you have documentation proving that you owe less in taxes than the IRS believes to be true, or if an assessor has made a mistake on your reporting, you may be more likely to have an Offer in Compromise accepted by the IRS.

Finally, if paying your tax bill would create a significant financial hardship, you may also qualify for an Offer in Compromise. Of course, proving financial hardship can sometimes be a challenge.

In addition to all of these considerations, there are several other eligibility requirements that you must meet in order to qualify for an Offer in Compromise:

✅ You must pay the application fee
✅ You must have filed all of your required tax returns
✅ You cannot be going through a bankruptcy at the time of filing
✅ You must submit all required documentation

❓ What to Expect from the Process

One of the most complicated aspects of going through the application process for an IRS Offer in Compromise is filling out and submitting all the required paperwork. There are several documents you may need to complete to even be considered for an Offer in Compromise, including:

💡 IRS Form 433-A – this form requires information on your assets, liabilities, expenses, and income to determine your Reasonable Collection Potential.
💡 IRS Form 433-B – this form needs to be filled out for businesses applying for an Offer in Compromise.
💡 IRS Form 656 – use this form to apply for an Offer in Compromise so long as there are no doubts as to your tax liability.
💡 IRS Form 656-L – use this form to apply if you are disputing your tax liability to the IRS.

In addition to completing these official forms as part of the application process, you will also need to provide some documentation, such as:

📌 health care statements
📌 bank and credit card statements
📌 investment information
📌 proof of living expenses
📌 car loan, mortgage, and similar loan statements
📌 copies of related tax returns
📌 Working With a Tax Professional Can Help

As you can probably see, the process of determining your eligibility and applying for an Offer in Compromise with the IRS can be quite time consuming and complex. This is where it can be helpful to consult with a tax professional for assistance. A qualified and experienced tax professional will be able to assess your current tax situation and give you a better idea as to whether or not going through the Offer in Compromise application process is worth your time and efforts.

If so, he or she will also be able to assist you with the application process, ensuring that you’re filling out the correct forms and that you submit all required documentation as well. This can increase your chances of reaching a successful offer with the IRS and take a lot of the stress and burden off your chest.

Even if you don’t qualify for an Offer in Compromise, your tax professional may be able to assist you in figuring out other alternatives for making your tax payment more financially manageable for you. This might include options to work out a payment/installment program with the IRS, among other options.

💡 The Bottom Line

Getting an IRS Offer in Compromise accepted is almost a coin flip, but if you meet the qualifications and submit everything correctly, your chances are solid. To boost your odds and lighten your load, team up with a seasoned tax professional. Don’t have one? Now’s the time to find one who can help you navigate the 2024 tax landscape and get the relief you need.

Ready to explore your options?

Reach out to us today to schedule a consultation and take the first step toward a fresh financial start. Whether it’s an Offer in Compromise or another solution, we’re here to guide you every step of the way.

How Inflation Can Impact Your Taxes in 2024

Guess what? Inflation isn’t just about rising prices—it’s also giving your federal tax breaks a bit of a boost. In fact, for the 2023 tax year, we’re looking at a solid 7% increase in many federal tax adjustments compared to 2022. And hold onto your hats, because we’re diving into what this means for your wallet, including some early estimates for 2024. By the end of this, you’ll be walking around like a tax-saving pro, ready to take on the year until the official numbers drop in October.

📌 Annual Federal Gift Tax Exclusion

The 2024 tax year is bringing some gift-giving goodness your way. Brace yourselves for a significant increase in the annual federal gift tax exclusion, soaring to a dazzling $17,000 per lucky taxpayer. That’s right, we’re talking about a large $1,000 hike from last year’s limit of $16,000. And here’s the best part: annual gifting up to this exclusion amount won’t work its way into your lifetime federal gift and estate tax exemption. The exclusion amount only goes up in $1,000 increments, so if the inflation factor stays put at 4% for 2024, get ready to see the same $17,000 exclusion next year. Excited about gift-giving yet?

📌 Unified Federal Gift and Estate Tax Exemption

In life, there are death and taxes. Fortunately, if you are the beneficiary of an estate, the 2023 tax year is delivering some serious tax benefits. The federal gift and estate tax exemption has skyrocketed to $12.92 million. That’s an eye-popping increase of $860,000 from last year’s $12.06 million. But wait, there’s more! If you filed your taxes as married, you get the privilege of doubling your exemption to a staggering $25.84 million in 2023. That’s a mind-blowing $1.72 million jump from 2022!

Now, let’s talk about the good news for all the high-net-worth individuals out there. These adjustments mean it’s time to break out the confetti because you can now make some seriously substantial gifts or leave behind some downright impressive estates, all without worrying about those pesky federal gift or estate taxes.

Did you know? The federal gift and estate tax exemption now goes up in flat increments of \$10,000. If inflation keeps steady at 4% for 2024, get ready to witness the exemption soaring to a potential $13.44 million in 2024 (or up to $26.88 million for all the lucky married couples out there).

📌Generation-Skipping Transfer Tax

The federal generation-skipping transfer tax (GSTT) also applies to wealth transfers targeting individuals more than one generation below the donor. Here’s the kicker: the exclusion for those generation-skipping gifts has soared to $17,000 for 2023. That’s a thrilling $1,000 increase from 2022. But wait, there’s more! The GSTT exemption for lifetime gifts and bequests aligns with the unified exemption, reaching an impressive $12.92 million ($25.84 million for all those lucky married couples) in 2023. Now, that’s what I call leveling up!

📌Noncitizen Spouses

Hey there, international lovebirds! Noncitizen spouses may miss out on the unlimited marital deduction privilege, but hold onto their passports because in 2023, the annual federal gift tax exclusion for noncitizen spouses skyrockets to a whopping $175,000. That’s a nice bump from last year’s $164,000. And it gets better: U.S. citizens can shower their noncitizen spouse with gifts up to $175,000 without touching a single penny of their own $12.92 million unified federal gift and estate tax exemption. Talk about international gift-giving bliss!

And with the inflation factor staying at 4% for 2024, the gift tax exclusion for noncitizen spouses could reach an estimated $182,000. So, get ready to spread the love and share those tax advantages with your global sweetheart. It’s time to celebrate the power of love and a little thing

💡Lessons Learned

The significant inflation adjustments to federal gift and estate tax parameters are like golden opportunities knocking at your door. But hey, don’t go it alone on this tax adventure. To truly unleash the full potential of these favorable tax rules, I’ve got two words for you: consult and conquer!

Whether it’s your estate planning team or our tax experts, seek the guidance of the pros who know the tax game inside out. Trust me, you don’t want to miss out on maximizing your wealth transfer opportunities in this exciting tax landscape. So, stay informed, take proactive measures, and let’s show those taxes who’s boss! Together, we’ll conquer the world of tax breaks, one dollar at a time.

Ready to make the most of these federal tax changes in 2024?

Reach out to our expert team today. Let’s tailor a plan that fits your financial goals—because when it comes to taxes, every dollar counts. Let’s keep more of your hard-earned wealth where it belongs: with you.

Read This before Tossing Old Tax Records!

If you’re the tidy type and have just filed your tax return for this year, 2024, you might be eyeing that stack of old tax records and wondering if it’s time to declutter. On the flip side, if tossing documents makes you nervous, you’re probably searching for another box to stash them in. So, what’s the right move? You do need to keep them for a certain retention period, but not forever.

Retaining Tax Records

Generally, tax records are retained for two reasons:

1️⃣ In case the IRS or a state agency decides to question the information on your tax returns.
2️⃣ To keep track of the tax basis of your capital assets so that you can minimize your tax liability when you dispose of those assets.

With certain exceptions, the statute of limitations for assessing additional taxes is three years from the return’s due date or its filing date, whichever is later. However, keep in mind that many states have a retention period that’s one year longer than federal law.

Additionally, the federal assessment period extends to six years if more than 25% of a taxpayer’s gross income is omitted from a tax return.

Remember, the three-year clock doesn’t start until a return has been filed. There’s no statute of limitations for false or fraudulent returns meant to evade tax payments.

If none of these exceptions apply to you, then for federal purposes, you can probably discard most of your tax records that are more than three years old. Just be sure to add an extra year if your state has a longer statute.

💡 Examples of Retaining Tax Records

Let’s look at some examples:

Sue filed her 2020 tax return before the due date of April 15, 2021. She can safely dispose of most of her 2020 records after April 15, 2024. Meanwhile, Don filed his 2020 return on June 1, 2021. He should keep his records until at least June 1, 2024. In both cases, if their states have longer retention periods, they should hold onto their records a bit longer. And don’t forget, if a due date falls on a weekend or holiday, the actual due date is the next business day.

The challenge with discarding all records for a particular year once the statute of limitations has expired is that some documents relate to the basis of your capital assets. These basis records should be kept until after the statute has expired for the year in which the asset was sold. To simplify things, consider keeping separate files for each asset.

Examples of Basis Records:

📌 Stock Acquisition Data Tax Records
- If you own stock in a corporation, keep the purchase records until at least four years after the year you sell the stock. This ensures you have the necessary information to accurately report profit or loss on your tax return. If you have a capital loss carryover, hold onto these records until the statute of limitations has passed for the last year you claimed that loss.
📌 Stock and Mutual Fund Statements (if you reinvest dividends)
- Many taxpayers use the dividends that they receive from stocks or mutual funds to buy more shares of the same stock or fund. These reinvested amounts add to the basis of the property and reduce the gain when They are eventually sold. Keep all such dividend statements for at least four years after the final sale.

📌 Tangible Property Purchase and Improvement Tax Records

- Keep records of home, investment, rental-property, or business-property acquisitions; the related capital improvements; and the final settlement statements from the sale for at least four years after the underlying property is sold.

Not sure which tax records to keep or toss in 2024?

We’re here to help you navigate the maze of tax return documents and retention periods. Contact us today, and let’s make sure your financial records are in perfect order!

Tax Tips for Procrastinators in Tax Filing

Consider the Consequences of Late Filing Your Tax Return
If you’ve been procrastinating on tax filing or have skipped past years, it’s time to think about the consequences. From penalties and interest to potential IRS enforcement actions, the costs of delaying can add up. And if you’re due a refund for a prior year, you might risk losing it entirely.

📌 Penalties

If you haven’t filed your return and you owe taxes, stop procrastinating because you could face both a late payment and a late filing penalty. File your return as soon as possible and pay as much as you can to minimize penalties and interest.

📌 Failure-to-Pay

The failure-to-pay penalty is 0.5% of your unpaid taxes for each month (or part of a month) that your payment is late, up to a maximum of 25%. If you delay too long and the IRS issues a levy notice, and you don’t pay within 10 days, the penalty increases to a full 1% per month. It’s a steep price to pay for putting off your tax filing.

⌛Not Filing on Time

There is also a penalty for not filing on time. The failure-to-file penalty is 5% of the tax owed for each month or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, the penalty is $435 (for tax returns required to be filed in 2020, 2021, and 2022) or 100% of the tax required to be shown on the return, whichever is less.

💡 Don't Wait... Even if a Refund is Due

No penalty exists for filing late if you’re due a refund. However, waiting too long can cost you your refund and any tax credits you qualify for. To receive a refund, you must file within three years of the original due date.

✅ Enforcement by the IRS

Taxpayers who continue to not file a required return and fail to respond to IRS requests to do so may be subject to a variety of enforcement actions, all of which can be unpleasant.

Need Help with Compliance?

It’s never too late to get back on track. Let us help you navigate the complexities of late tax filing and bring your federal—and state, if applicable—income tax returns into compliance.

Don’t let procrastination turn into a costly mistake. Reach out to us now, and let’s get your tax filings back on track before those penalties add up. Your peace of mind is just a phone call away.

Does it make sense to buy this equipment before year-end?

If you’re eyeing a significant deduction (and who isn’t?), the Section 179 IRS tax code allows businesses to deduct up to $1,080,000 on qualifying capital equipment. However, there’s a cap—businesses can’t spend more than $2,700,000 on such equipment during the tax year to be eligible for this deduction.

To qualify, the equipment must be purchased and in use by 11:59 p.m., December 31, 2024. With supply chain challenges still a concern, it’s wise to make your business purchases sooner rather than later to avoid any last-minute stress.

❓ How much can I save?

Section 179.org offers a simple-to-use calculator to help you estimate your tax savings. Enter the price of your equipment or software to see how much you can save.

❓What qualifies?

According to the Section 179 FAQs, “Most tangible equipment that businesses purchase or lease will qualify for the deduction.”

Common equipment includes machinery, computers, computer off-the-shelf software, office furniture and equipment, qualifying vehicles, or other tangible goods. Qualifying business vehicles with a gross vehicle weight in excess of 6,000 pounds are also included. Property attached to your building that is not a structural component of the building (i.e., a printing press, large manufacturing tools, and equipment) is included. Also, certain improvements to existing non-residential buildings, such as fire suppression, alarms and security systems, HVAC, and roofing are included.

Now is the time to act on this valuable tax-saving opportunity. Tax regulations can change, sometimes even mid-year, so it’s crucial to take advantage of this break while it’s available. Contact us to ensure you’re maximizing your equipment maintenance and purchase deductions.

Want more year-end tax tips?

Download our latest Year-End Tax Planning Guide today to stay ahead of the game. Let’s chat about how your business purchases and equipment maintenance can give you the deductions you deserve.

Reach out today—we’re here to help you navigate the year-end rush with ease.

2024 Child Tax Credit FAQs

If you received the Child Tax Credit or monthly payments in 2021, you might still have questions about how it affects your current tax situation. As we move into 2024, it’s important to stay informed about how these credits play a role in your IRS filings.

We’ve got the answers you need. Here are some common questions that might still be on your mind. If you have additional questions, feel free to reach out. We’re here to help you navigate these tax waters with ease.

❓ What were the 2021 tax changes made for this credit?

The American Rescue Plan Act temporarily expanded the credit for 2021, including:

✅ Allowing a 17-year-old child to qualify for the credit.
✅ Increasing the credit to $3,000 per child, and $3,600 per child under age 6.
✅ Making the credit fully refundable for families who lived in the U.S. for more than six months in 2021.
✅ Requiring half of the credit to be paid in advance by having the IRS send monthly payments from July to December 2021.

❓ What are the child tax credit eligibility requirements?

There are a few requirements, including:

✅ The child must be a U.S. citizen, national, or resident alien, and have a Social Security number.
✅ The child must be claimed as a dependent on your 2021 tax return.
✅ The child must be related to you and generally live with you for at least six months during the year.
✅ You must include the child’s name, date of birth, and SSN on the return.

❓ Can everyone claim the higher per-child tax credit on their 2021 return?

No. The enhanced tax break begins to phase out at modified adjusted gross income (AGI) of $75,000 on single returns, $112,500 on head-of-household returns, and $150,000 on joint returns.

The credit amount is reduced by the AGI threshold overage. However, families ineligible for the higher tax credit may still claim the $2,000 per-child credit when filing their 2021 tax return.

❓ Can I take the higher childcare tax credit for my child that turned 17 in 2021?

Yes, as long as you meet all the other eligibility requirements.

❓ We had a baby in 2021. How is the credit calculated?

Since the IRS didn’t know about the baby, you probably didn’t receive advanced payments. However, you can account for the child on your 2021 return as long as you meet the other eligibility requirements.

❓ I normally do not file a tax return because my income is below the threshold. Can I still claim the child tax credit?

Yes. The credit is fully refundable, even if you don’t owe any taxes, for families who lived within the U.S. for more than six months of the year. Employment or earnings aren’t required to claim the credit.

❓ I have shared custody of my 12-year-old child. My ex claims our child in even years, and I claim her in odd years. Can I claim the credit on my 2021 return if my ex claimed it on their 2020 return?

Yes. If your ex claimed the child in 2020, they likely received the payments in 2021. If your ex used the Child Tax Credit Update Portal to unenroll from payments, they should not have to repay any 2021 amounts on their 2021 return. Even if your ex didn’t unenroll, it shouldn’t affect your ability to claim the credit on your 2021 return.

❓ I don’t remember the payment amounts received in 2021 for the child tax credit. Will the IRS send me a letter telling me how much I received?

Yes. The IRS should have sent Form 6419 in the mail, detailing the payments you received. It’s not sent electronically, so check your physical mail for it.

❓ Do I pay tax on the monthly payments received in 2021?

No. These payments are advance payments for the 2021 Child Tax Credit and are not taxable. You will use IRS Schedule 8812 to reconcile the monthly payments.

❓ I didn’t receive any advance child tax credit payments in 2021. Can I still claim the credit on my 2021 return?

Yes. You can claim the full amount on your 2021 return even if you didn’t receive advance payments. Use Schedule 8812 to determine the amount, then transfer it to your 1040. Don’t forget to include Schedule 8812 with your return.

❓ Do the child tax credit overpayments need to be paid back?

It depends on your specific situation. Give us a call for a detailed explanation.

❓ My ex-spouse owes back taxes on child support. Will child tax credit refunds be reduced for my ex?

Yes. The IRS can use the refund to offset past-due federal taxes, state income taxes, and other federal or state debts, including back child support payments.

❓ Does claiming the child tax credit on my 2021 tax return increase its chance of being delayed?

It depends. Simply claiming it shouldn’t delay your return. However, if the amount you report differs from the IRS’ records or if your calculations are off, your refund could be delayed.

Need More Help?

If you still have questions about how the Child Tax Credit impacts your tax return or need personalized assistance, don’t hesitate to contact us. We’re here to make tax season a breeze for you in 2024!