What is an IRS Federal Tax Lien?

The IRS federal tax lien is a claim registered against property for the non-payment of back tax liabilities. Unlike a bank or wage levy, the tax lien does not deprive the taxpayer of the property or the right to transfer this property. If you owe back taxes then you may ultimately become the victim of one of the most powerful tools in their collection arsenal: IRS tax liens. And know that the larger your back tax debt liability, the sooner the IRS may issue this federal tax lien against your property. The formal notification is called a Notice of Federal Tax Lien and this is a ?public notice? that you owe the IRS money. Now your IRS tax problem will no longer be a ?private or confidential matter?. Anyone considering doing business with you like banks, various financial institutions, customers and vendors will know that you owe the IRS back taxes. That is the reason so many delinquent taxpayers hope to stop IRS tax liens before this matter goes on the public record at the County Clerk?s office in their particular county. Once the IRS federal tax lien is registered, then the IRS has now become a secured creditor right behind other prior secured creditors, but ahead of all your unsecured creditors. And to make matters even worse, this IRS tax lien will go on your credit report. It will negatively impact your credit score, obviously making future financing for home, vehicle or other types of loans very difficult. Very often, this federal tax lien can make you completely ineligible to borrow, even at ridiculously high rates of interest, depending upon the guidelines imposed by the lender.

What are your options to secure an IRS lien release?

The Internal Revenue Service will release a Notice of Federal Tax Lien within 30 days after you satisfy the tax due (including any interest charges or other additions) by paying the tax debt or by having it adjusted, or within 30 days after the IRS accepts a bond that you submit, guaranteeing payment of the debt. It is prudent to seek out the advice of IRS tax specialists for IRS tax liens. The negative impact can be far reaching, as noted above in the first section. Keep in mind that an IRS lien release will typically occur ten years after the tax is assessed, provided the IRS does not file it again. However, contacting IRS tax specialists to review your tax lien problem is certainly advisable over ?waiting out the 10 year period? for the IRS federal tax lien to automatically or self-release. There are standardized procedures in place for IRS lien releases, discharges and subordination. In qualifying situations, the IRS will normally remove the tax lien within 30 days and the taxpayer may receive a copy of the Certificate of Release of Federal Tax Lien.

What can be done if you cannot afford to pay the tax debt in full?

Obviously, if you had the funds to remit on your back tax liability, you would not find yourself in this predicament where you are staring in the face of an IRS federal tax lien. As discussed above, the IRS will issue an IRS lien release if you satisfy the tax debt due by paying it or having it ?adjusted?. This essentially means that the IRS is open to a tax settlement, also called a ?compromise offer?, for an amount less than your full back tax liability. While this may sound quite easy, do not plan on this being a simple situation. If you are hoping to reduce your delinquent tax debt, there are several programs you may qualify for. IRS tax specialists have the in depth knowledge and experience to review your financial situation as it pertains to the Offer in Compromise program (both personal and business) as well as IRS Penalty and Interest Abatement. Both these programs offering IRS tax debt relief do reduce the overall tax liability. However, making or submitting an ?offer? to the IRS will not affect the IRS tax lien which remains effective until your offer is formally accepted and the amount is full paid to the IRS. At that point, a taxpayer may request the IRS lien release. Again, IRS tax specialists handle IRS tax liens a daily basis. They are abreast of all the complexities to insure your best chance at success for an accepted reduced offer and the ultimate release of your IRS federal tax lien.

The recently enacted “American Recovery and Reinvestment Act of 2009″ (2009 Economic Stimulus Act) includes a wide-range of tax incentives, many of which are retroactive to the beginning of the year. This week I’ll share the changes impacting individuals. Then, be sure to look for email next week when I share the changes impacting businesses. Here’s What Individual Taxpayers Need to Know about the New Tax Law: Expanded First-Time Credit for First-Time Home Buyers Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $75,000) by first-time home buyers. It applied to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit were required to repay any amount received under this law back to the government over 15 years in equal installments or earlier if the home was sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The new tax law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009. It also extends the credit through the end of November 2009, and bumps up the maximum value of the credit from $7,500 to $8,000. Expanded and Revised Higher Education Tax Credit The new law creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses, including books, paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year. The credit is subject to a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the credit is refundable. This new credit temporarily replaces the Hope credit. Computers as an Education Expense The new law permits computers and computer technology, including internet access, to qualify as qualified education expenses in 529 education plans for tax years beginning in 2009 and 2010. Tax Break for New Car Purchasers The new law allows taxpayers to deduct state and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles, and motor homes. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns). The deduction is allowed to both those who itemize their deductions as well as to those who do not. The deduction cannot be taken by a taxpayer who elects to deduct state and local sales taxes in lieu of state and local income taxes. Alternative Minimum Tax(AMT)Patch To hold the number of taxpayers subject to the AMT at bay, the new law increases the AMT exemption amounts for 2009 to $46,700 for individuals and $70,950 for joint returns, and allows the personal credits against the AMT. Making Work Pay Credit The new law provides an individual tax credit in the amount of 6.2 percent of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly). The credit can be claimed as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return. Under the credit, workers can expect to see perhaps $13 a week less withheld from their paychecks starting around June. Next year, the extra take-home pay will go down to around $9 per week Economic Recovery Payment The new law provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans’ Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit. Refundable Credit for Certain Federal and State Pensioners The new law provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit. Unemployment Compensation Exclusion The new tax law temporarily suspends federal income tax on the first $2,400 of unemployment benefits received by a recipient in 2009. Expanded Earned Income Tax Credit The new law provides tax relief to families with three or more children and increases marriage penalty relief. The changes apply for 2009 and 2010. Expanded Child Tax Credit The new tax law increases the refundable portion of the child tax credit for 2009 and 2010 by lowering the income threshold to $3,000 (from $8,500 in 2008). Qualified Transportation Fringe Benefits Qualified transportation fringe benefits, such as transit passes, qualified parking and van pooling are not included in an employee’s income up to a specified dollar amount. The new tax law increases the monthly amount to $230 per month from $120 per month starting in March 2009 and continuing through 2010. Energy Incentives The new tax law enhances several energy tax incentives that reward taxpayers for installing energy-efficient property and alternative sources of energy in their homes.

1. Estimated Tax Payments: If you are a sole proprietor, a partnership, or a shareholder in a Sub-chapter S corporation, you are considered self-employed. Since you don’t have an employer deducting taxes from your pay throughout the year, you are responsible for making advance payments of your estimated federal income tax. Estimated tax payments are due quarterly - on April 15, June 15, September 15, and January 15 - and are filed on a Form 1040-ES. At the end of the tax year, you will file a final Form 1040 with a Schedule C, which itemizes your business expenses for the whole year.

To avoid underpayment penalties - which are substantial - individuals whose adjusted gross incomes were under $150,000 need to have paid at least 100 percent of their prior year’s tax bill. People whose incomes were over $150,000 need to have paid 110 percent of the amount they owed in the prior year.

It’s in your interest to make your estimated tax payments during the year. This system also keeps you from owing a large sum of money all at once, which can be overwhelming. If your state of residence has income taxes, as most do, you will have to make estimated tax payments throughout the year for state taxes as well.

2. Self-Employment Tax: Your estimated tax payments will also include the federal self-employment tax - Social Security and Medicare. If you were employed by someone else, your employer would pay half of your Social Security and Medicare and the other half would come out of your paycheck. Self-employed people must pay the full amount themselves; however, 50 percent of the self employment tax is deductible on the 1040 form.

What if you are a salaried employee and you operate a home-based business as a sideline? In this case, you’ll be filing both the usual Form 1040 and a Schedule C for your home business deductions; you may also have to pay additional self-employment tax. No matter how little your sideline income is, you should be aware that it is subject to tax - although by taking advantage of the home-office deduction, you may find you owe little or no taxes.

3. Employment Taxes: Home-based workers who employ others must comply with many additional tax requirements. IRS Circular E, Employer’s Tax Guide, covers the federal regulations, and your state tax agency can inform you of state requirements for employers with regard to income, state unemployment, and workers’ compensation taxes.

If you employ your children or grandchildren, their earnings are deductible. Family businesses do not need to pay Social Security or unemployment taxes on minor children, and the children pay no income taxes on the first $3,000 of earned income. To substantiate this claim, keep time records of their work (the records will be more believable to the IRS if a non-relative keeps them), note the work done, and pay family at the rate you would pay a non-family member for the same work.

4. State and Local Taxes: Depending on where you live, you will face a variety of state and local tax requirements. All but nine states (Alaska, Wyoming, Nevada, Florida, Tennessee, South Dakota, New Hampshire, Texas, and Washington) have state personal-income taxes. But even those may have taxes on business. For example, Florida levies an income tax on corporations. Some cities, like Kansas City, have earnings taxes apart from the state income tax; others have unusual taxes on business. New York, for example, taxes unincorporated businesses.

Although regular sellers on eBay are only required to fill up a registration form to legally put items up for auction or sale, there are a few other things to consider. You will be able to survive longer in the business if you follow rules and regulations. Knowing the right items to pay for to begin is essential so that you avoid possible scams and unknown invisible fees.

What to Do

If you intend to set up a retailing business on eBay, you are required to register or get a license depending on your location. There are laws already formulated to cater to online business owners. These are created by the state, city or country which primarily intends to protect the best interests of both the buyer and seller, as well as prevent any unscrupulous activity. Go to your local commerce authority to register your business. Not doing so will put you at risk for unlawful issues.

There are local commerce and zoning laws as well that cover your business on eBay. Since you will be maintaining inventories for your business, you will be required to get a permit, depending on the type of industry that you are currently in.

Tax and Insurance

You also have tax responsibilities as an eBay business owner. Personal income or self employment tax and sales tax will be required on retail sales. Plenty of eBay sellers are required to pay for a certain percentage of their current income to the United States government, considered as income tax. Sales tax may also be asked from eBay retailers who live in particular cities and localities. Check the laws in your area, so that you can reserve a portion of your current profit for income tax payment or sales tax.

Your business and inventory should be insured too. The value associated in your business will increase over time, which is why you have to get insured to stay free from huge financial losses should there be any accident or sudden change.

Very big and valuable inventories will need insurance. Search for a number of reliable options online and determine the inclusions of their policies. Meticulous records should be kept accurately. You will have to be very careful about every entry to have no problems during tax preparation and insurance processing.

The IRS

Even if you are running a business on the internet, you will have to stay transparent to keep looking credible should the IRS start asking questions about your industry. Social Security numbers need to be collected from customers, especially your regular and biggest clients. There should be a database of social security numbers, addresses, contact numbers and names. The IRS requires SSNs for the purposes of tax. It is only one way of helping others online stay protected against unscrupulous and dishonest individuals.

The IRS wants eBay and other online companies to give out more information regarding high-volume and high-value sellers to narrow the tax gap between the amount that Americans owe and pay for actually. Ebay brokers will have to give some information regarding both the buyer and seller to the government. The data will most likely include gross and net proceeds, size of inventory and contact numbers and addresses. You will find that legally doing business online is the way to go to boost credibility and last for several years.

The recently enacted “American Recovery and Reinvestment Act of 2009″ (2009 Economic Stimulus Act) includes a wide-range of tax incentives. Extension of Bonus Depreciation Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write off 50% of the cost of depreciable property acquired in 2008 for use in the United States. The new law extends this temporary benefit for qualifying property purchased and placed into service in 2009. Extension of Section 179 In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Last year, Congress temporarily increased the amount that small businesses could write off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The new law extends these temporary increases for capital expenditures incurred in 2009. Expanded Carryback of Net Operating Losses Prior to the new law, net operating losses (NOLs) could be carried back to the two years before the year of the loss and carried forward for the succeeding twenty years. For 2008, the new law extends the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less. Incentives to Hire Unemployed Veterans and Disconnected Youth Businesses are allowed to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to employees of one of nine targeted groups. The new law expands the work opportunity tax credit to include two new targeted groups: (1) unemployed veterans; and (2) disconnected youth. Individuals qualify as unemployed veterans if they were discharged or released from active duty from the Armed Forces during 2008, 2009 or 2010 and received unemployment compensation for more than four weeks during the year before being hired. Individuals qualify as disconnected youths if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months. Accumulated AMT and R&D Credits The new law extends the provision contained in the Foreclosure Prevention Act of 2008 and allows AMT and loss taxpayers in 2009 to receive 20% of the value of their old AMT or research and development (R&D) credits to the extent such taxpayers invest in assets that qualify for bonus depreciation. Delayed Recognition of Cancellation of Debt Income To benefit certain businesses that buy their own debt at a discount, the new law lets the businesses recognize cancellation of debt income over 10 years for specified types of business debt repurchased by the business in 2009 or 2010. Qualified Small Business Stock The new law increases the exclusion for gain from the sale of certain small business stock held for more than five years from 50% to 75% for stock issued after the enactment date and before 2011. S Corporation Holding Period The new law temporarily shortens the holding period of assets subject to the built-in gains tax from 10 years to 7 years. Estimated Taxes The new law decreases required estimated tax payments for individuals whose incomes primarily come from a small business in 2009. Rather than being required to make quarterly estimated tax payments based on 100% of their 2008 returns, the new law allows computation based on 90%. To qualify, the individual’s adjusted gross income must be less than $500,000 and he or she must certify that more than 50% of the gross income shown on his or her return for the prior tax year was income from a small business. Income from a small business generally means income from a trade or business with an average number of employees of 500 or fewer.