For payees who do not furnish a correct Tax Identification Number (TIN), you may be required to exercise the backup withholding tax rate.

If you fail to comply with the backup withholding rules, you are susceptible to being slapped with penalties. Additionally, you may be held liable for uncollected monies.

If you find yourself in this situation, here is what you will need to know in order to comply with the IRS.

Requirement to Obtain TIN

If you issue payments to employees or account holders, you must request the payee’s TIN using Form W-9, Request for Taxpayer Identification Number, when the employee or account holder is hired, opens an account or conducts a transaction. If the employee or account holder fails to provide you with his TIN, the IRS may inform you that you must take backup withholding taxes from the payment that you give to them. You are also expected to continue requesting their TIN.

If the payee provides a TIN but it is clearly the wrong format – such as the wrong number of digits or contains a letter – it is considered “missing”, just as if the payee had not provided you with a number at all. Additionally, if the TIN does not match IRS records, it is flat out considered “incorrect”.

When the Backup Withholding Rate Applies

If the employee fails to provide you with his correct TIN, you must take the backup withholding rate of 28% from certain taxable payments unless he is exempt. The IRS may also require you to extract these payments if the recipient has been underreporting his taxes.

Some payment types that might require backup withholding are rent payments, dividends, interest, royalties, and certain other payments that you issue while conducting business.

That being said, backup withholding does not apply to all types of payments. Some payment types are exempt, including wages, annuities, pensions, IRAs and other retirement accounts, pre-tax savings accounts, real estate transactions and long-term-care benefits.

IRS Notification of Backup Withholding

The IRS usually discovers that a taxpayer has a missing or incorrect TIN and is therefore subject to the backup withholding rate while processing 1099s. Once this determination has been made, the IRS will issue a CP2100 (for high-volume payers who have 250 or more payees with missing or incorrect TINs) Notice or CP2100A (for all other payers) Notice to the payer to inform him of the requirement.

If you receive the CP2100 or CP2100A Notice, you must send a “B” Notice to the named payee within 15 days of either the date you receive it, or the CP2100/2100A date – whichever comes later – and you must begin backup withholding within 30 days of that same date. Once the payee furnishes the TIN and certifies its accuracy, you must stop the withholding within 30 days. For more details on this process, view Publication 1281.

Once you have reported the backup withholding taxes to the IRS on Form 945, the payee will receive credit for this withholding when they file their tax return at the end of the year.

More Information

For more information on the backup withholding rate and payments, refer to the Instructions for Forms 1099, 1098, 5498, and W-2G and Publication 1281.

Additionally, it is always a good idea to consult a tax professional to ensure that you are in full compliance with the law.

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Estimated taxes are calculated on income where taxes were not withheld. Just like a regular employee has taxes taken out of every paycheck so they make small payments throughout the year, taxpayers and entities that do not have taxes withheld from their income also have to make payments during the year. Even if the majority of your income has taxes withheld, you may have other income that qualifies for estimated tax, like dividends, prizes, and gains from selling assets.

Who is Required to Pay Estimated Tax?

There are several reasons why you might be required to pay estimated taxes, but the common denominator is having income that does not have tax withholding. In some cases, it depends on the amount of tax you expect to owe for the year.

For a corporation, if you expect to owe $500 or more in taxes for the year, you must pay taxes throughout the year. For a sole proprietorship, partnership, S corporation shareholder, or a self-employed person, you are generally must estimate tax payments if you think you will owe $1,000 in taxes for the year.

Finally, if you owed taxes in the previous year on dividends, interest, cash awards, or other income, you could be subject to withholding. If you were a citizen or resident of the U.S. for the entire previous year, the tax year was 12 months long, and you did not owe taxes, you are not subject to estimated taxes. Refer to the worksheet in Form 1040-ES to help you determine whether you need to worry about this.

How Much Will You Owe?

Sometimes it can be a little tricky to figure out exactly how much is owed each quarter because most people do not know exactly how much they will end up earning for the year. The trick is to avoid being charged penalties and pay as little as possible (why give the government an interest free loan?).

In order to avoid getting charged penalties, at least 90% of the current year taxes must be paid (in equal quarterly payments unless you are able to show income was earned at different points through the year on your tax return). If you are unsure of what your total tax liability is going to be for the year use one of the following methodologies.

• Pay 100% of the 2010 tax liability if income was $150,000 or less
• Pay at least 110% of prior year tax liability if income was over $150,000.

How to Pay Estimated Tax Payments & Due Dates

Paying estimated tax payments is quick and easy. If you are making estimated tax payments as a sole proprietor, partner, S corporation and/or a self-employed individual, mail IRS form 1040-ES (you only need to provide the quarterly voucher, the worksheet does not need to be filled out. You can use the worksheet to help you figure your estimated tax payment or use one of the methodologies mentioned above) with your check to your IRS processing center. Be sure to make the check payable to “United States Treasury” and put your Social Security number and “Form 1040-ES” in the notes of the check. The due dates for estimated tax payments are the following:

2011 Estimated Tax Payment Due Dates

• April 18th 2011: For period 1/1/11-3/31/2011
• June 15th 2011: For period 4/1/2011-5/31/2011
• September 15th 2011: For period 6/1/11-8/31/2011
• January 17th 2012: For period 9/1/11-12/31/2011

2012 Estimated Tax Payment Due Dates

• April 17th 2012: For period 1/1/12-3/31/2012
• June 15th 2012: For period 4/1/2012-5/31/2012
• September 17th 2012: For period 6/1/12-8/31/2012
• January 15th 2013: For period 9/1/12-12/31/2012

If you think you may be required to pay estimated taxes, it is a good idea to consult a CPA to make sure you calculate them correctly.

Related posts:

1. Filing a 2011 Tax Extension: 2012 Deadline Dates & How to File
2. Avoiding Penalties From Underpayment of Estimated Taxes
3. Why an IRS Payment Plan is Not Always Best If You Owe Taxes

Here is a list of some of the tools and resources that the IRS has at their disposal for finding out all of the real estate, property and bank accounts that belong to individuals:

Nationwide Online Asset Locator

IRS employees have access to public records that the general public is not allowed to use. In fact, IRS employees are required to run a public record check on all taxpayers to discover assets. They use an online asset locator research tool, which uncovers real estate transactions, property owned, vehicles, boats, planes owned, and corporate information for business owners. Running a quick search with this tool will uncover many of an individual’s assets, and can also lead to finding cases of tax fraud or tax evasion.

Government Locator Services

The IRS and other government agencies can use locator service programs to find assets owned by a taxpayer. It is not available to the general public, so you cannot log in and obtain information about your neighbors; however, government employees who have the need to uncover information about an individual may tap into this huge database of details.

The Internet as a Research Tool

In addition to government-only tools, the IRS can jump online just like anyone else can to uncover more information about you than you probably expect. IRS employees have made use of Internet research to locate taxpayers and to find out what types of assets they own. It is also important to note that Internal Revenue Service employees are not above finding you on social media sites to track down your assets.

Credit Bureaus

The Internal Revenue Service retains the right to contact credit bureaus to obtain a taxpayer’s information if that individual is suspected of tax fraud or tax evasion.

Department of Motor Vehicles (DMV)

Because the DMV of every state requires owners of automobiles and other motor vehicles to get registered and legally mandates that the driver must have a valid driver’s license, the IRS can often use DMV records to track down taxpayers and their assets.

Real Property Records

When an individual purchases real property, a record of the purchase becomes available online. This type of record is frequently available through the courthouse website and can be accessed without having to go to the town hall in person, making it easy for the IRS to access it from anywhere. There are currently efforts being made to create a central database of real property records, which will enable IRS agents to search all records, nationwide, in one location.

Subpoena Power

Being a federal agency, the IRS has the power to subpoena information from third-party records. When the IRS has reason to believe that a company has information that they need about a taxpayer, they can get it via a summons enforcement. This may be used for credit records or loan applications so that the IRS can see what the taxpayer purchased or intended to purchase with that loan.

Connection to Businesses

The National Uniform Commercial Code filing records contain information about business-owned assets and about the relationship between an individual and a business. If you purchase property or vehicles, or own assets under a business entity, you can be sure that the IRS can and will make the connection between you and your business to discover any assets that may be hidden under your business name.

The Post Office

If the U.S. Postal Service can find you to deliver mail, then the IRS can find you as well.

Investigators

Many IRS employees are trained investigators who spend their days tracking down taxpayers and assets.

With all of these methods and resources available to IRS, there is little chance that an individual can purchase or sell an asset without the IRS finding out. Therefore, it is always in your best interest to report all of your property, finances and other assets to the IRS at tax time.

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One of the most popular methods of saving earned income for retirement is through employer-sponsored retirement programs that offer tax benefits. Here we look at the 401(k) program and how it is taxed:

Tax-Deferred Retirement Plans

The passage of the Tax Reform Act afforded taxpayers new opportunities to save for retirement while also enjoying certain tax benefits. Tax-deferred retirement plans, such as a 401(k), make it possible to deposit regular contributions into a retirement fund through employer-sponsored programs. Annual contributions (within IRS guidelines) are not taxed like regular income, making it possible to save money while at the same time reducing taxable earned income for the year. Employer-sponsored 401(k) retirement plans also provide the additional bonus of receiving free money from your employer, who may choose to match all or part of your contribution amount.

Contributions and Distribution Rules

Employees who participate in an employer-sponsored 401(k) plan determine a set percentage of their pay to contribute to their retirement account each year. The amount of money set aside by yourself and your employee reduces your annual taxable income. Tax-deferred growth of contributions and investment earnings are the main draw for individuals to participate in this type of plan. No distribution of funds may occur before the account owner reaches the age of 59½, barring few exceptions. If money is withdrawn from the account prior to this age without qualifying conditions being met, a 10% early withdrawal penalty, plus payment of all applicable taxes, will apply. Although all distributions from a 401(k) are subject to regular tax rates at the time of distribution, the following exclusions may allow for distributions without the additional 10% penalty prior to age 59½:

• Disability or death
• Court-ordered distributions as part of a divorce or separation agreement
• Payment of medical expenses in excess of 7.5% of AGI
• Purchase of home (must not own home at the time or within the previous two years – maximum $10,000 distribution qualifies for tax penalty exemption)
• Immediate and extreme financial hardship

In the event that the distribution prior to age 59½ qualifies you for an exemption, early withdrawal penalties may be avoided.

Required Distributions

Minimum required distributions are necessary beginning at age 70½. Just as early withdrawal of distributions trigger a tax penalty, so does the failure to take required minimum distributions. Account owners who do not take the minimum required distribution as specified by the IRS will be subject to a penalty of 50% of the required amount. Additionally, state and local taxes will be owed on that amount. Minimum required distributions may not be rolled over to another retirement plan, as this money is intended to provide for expenses in your retirement years, and not to be passed on to beneficiaries at the time of your death.

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The most common reason for not filing tax returns on time is when a tax bill is owed.  Unfortunately by not filing, the unpaid balance of your taxes will be charged with the failure to file penalty which is 5% a month. If you do not owe the IRS money and you did not file, the IRS will not impose penalties as long as they agree that no taxes are owed. If you are owed a refund and do not file, the IRS will not send you the refund until your taxes are filed. The IRS does not look favorably on individuals who fail to file their income tax return by the deadline, however they will be more willing to work with individuals who take the necessary steps to fix the problem versus those who pretend it doesn’t exist.  If you haven’t filed your return on time, the following information can help you back on track and avoid additional fees and penalties.

• File your tax return as soon as possible-  There is no way around it, you must file your tax return even if you are filing it late.  After the deadline passes you no longer have the option to request an extension, therefore the sooner you file your return the better.
• Determine how long it will take to pay your tax bill-  Look at your current financial situation and figure out how much time is needed to pay your tax bill.  The ideal scenario would be that you have the resources available to pay your bill in full, therefore eliminating the additional fees and penalties that will accrue over time.  If you do not have the resources on hand to pay your tax bill you should determine how long it will take to repay the money owed.  This information will be needed in order to set up an installment agreement or other type of payment plan.
• Contact the IRS to arrange payment-  As long as your tax bill remains unpaid, you will continue to accrue penalties and fees that can significantly increase the amount of money owed.  By working with the IRS to establish a repayment plan, you can begin making payments to reduce your tax bill, thereby reducing the amount of fees and penalties that are applied to the liability.
• Consider a loan-  Depending on the amount of money owed and your ability to secure personal financing, you may want to consider borrowing money to pay off your tax bill.  Before doing so you should carefully review the terms of any new loans to ensure you are selecting the option that will save you money in the long term.

It is not uncommon to feel overwhelmed or intimidated when dealing with the IRS and unresolved tax issues.  If you have failed to file your tax return on time and do not feel up to dealing with the situation on your own, consider hiring a tax professional to help guide you through the process.  Delaying the inevitable will only result in additional stress on your part and a growing tax bill that will have to be addressed at some point in time in the future.  The sooner you face the situation and develop a plan to deal with any taxes owed, the sooner you will be able to resolve the problem and move on with your life.

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“As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing,” said IRS Commissioner Doug Shulman. “This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them.”

This is the second special disclosure initiative that the IRS has offered over the last few years. The fist initiative took placed during 2009 and when it closed on October 15th of that year, 15,000 voluntary disclosures were brought forward. Since then over 3,000 taxpayers have owned up to different bank accounts that they have funds in all over the world.

The goal of the initiative according to Shulman is to bring people back to the US tax system. “Combating international tax evasion is a top priority for the IRS. We have additional cases and banks under review. The situation will just get worse in the months ahead for those hiding assets and income offshore. This new disclosure initiative is the last, best chance for people to get back into the system.”

This initiative will have some changes from the 2009 program. To begin with the penalty structure for the new 2011 version is higher. This means that those that had a chance to come forward in 2009 and chose to wait will not get a free ticket.

In the new 2011 initiative the framework for penalties has been raised and individuals will be required to pay 25% penalties for the total amount of money in their accounts for the year in which the account balance was highest from the year 2003 through 2010. Those taxpayers who do come forward will also need to pay back taxes due along with interest for a total of up to eight years. Additionally, accuracy related tax penalties along with delinquency penalties will also be due.

In order to participate in the program, those eligible must file all of their amended and original tax returns and include all tax payments due plus interest and all other penalty fees, no later than the program deadline of August 31, 2011.

Some participants in the program will be able to receive a reduced interest penalty payment of either 5% or 12.5%. These reductions will mainly be for those who have smaller offshore accounts where totaling assets do not exceed $75,000.00 for any one calendar year.

While the penalties being imposed with the disclosure program may seem high, they are not even close to what you could pay if you do not come forward and then get caught later on. Taxpayers who do not come forward could be setting themselves up for the possibility of much higher penalty fees as well as criminal prosecution.

“This is a fair offer for people with offshore accounts who want to get right with the nation’s taxpayers,” Shulman said. “This initiative offers them the chance to get certainty about how their case will be handled. Just as importantly, those who truly come in voluntarily can avoid criminal prosecution as well.”

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• four (4) percent for overpayments (three (3) percent in the case of a corporation);
• four (4) percent for tax underpayments;
• six (6) percent for large corporate underpayments; and
• one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

Who Will the New Rates Affect?

The IRS has not raised their interest rates in quite some time and these new rates will most likely hurt those who owe the government money, as well as those that are currently in payment plans to pay back money that they owe.

If you are in either of these categories, it will be important for you to take note of the interest hikes and do what you can to avoid having to pay them.

Non-Corporation Tax Filers

If you are an individual or any other entity that is not considered a corporation the new tax rates will affect you as follows. Interest rates, according to the Internal Revenue code are factored quarterly. Both underpayments and overpayments for non corporations will be calculated using the same formula.  For all taxpayers that are not a corporation the rate of interest paid is calculated by factoring the federal short term interest rate and then adding three percentage points.

Tax Rates for Corporations

Interest rates for corporations are figured a bit differently. The underpayment rate is the same and uses the federal short term rate and then adds in three percentage points. The overpayment rate however, is calculated using the federal short term rate and then adding in just two more percentage points.

Large corporations pay even more for underpayments. For them, underpayments are determined by using the federal short term rate and then adding in five percentage points.

Also for corporations, an overpayment of tax that exceeds $10,000 during any given taxable period is charged the federal short term and an additional .5 percent. Also, for corporations that fail to pay their estimated tax during the first fifteen days of the month of April 2011, there will be a 4% interest rate that will be applied to all underpayments of taxes for the first quarter of 2011.

Related posts:

1. IRS Interest Rates Q3 2011: Rates for Overpayments & Underpayments
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IRS Appeals System

• There may be an occasion when the IRS makes adjustments to a taxpayers tax return. When this occurs, the filer will receive a notice explaining an adjustments that the IRS proposes, as well as information as to how you can request a conference with the Appeals office.
• The Appeals office does not only deal with tax return adjustments but any number of other situations. If you disagree with liens, levies, offers in compromise, trust fund recovery penalties, interest and penalties they may all be presented to the Appeals office.
• Before meeting with a representative from the Appeals office, it is important that you gather all of your relevant information to the case in question. You have the right to represent yourself or have an attorney speak on your behalf. It is imperative that you have any records or documentation that support your position, otherwise you might be wasting everyone’s time. Understand the appeal’s process is not designed for anyone who simply doesn’t not want to pay tax liabilities but rather for those who have a legitimate reason for disagreeing with an IRS ruling.
• The Appeals office is the only administration within the agency that allows you take action against an IRS ruling.
• Some actions may be appealed through a court of law, versus the Appeals system. This may be necessary for those who do not wish to deal with the Appeals office or those who have gone through the Appeals office without the desired results.

Not all rulings are eligible for an appeal. Carefully read any correspondence you have received from the IRS to determine whether or not the ruling in question is eligible for an appeal. This information will be noted somewhere within the documentation the IRS sends to you regarding the ruling.

It’s important to note that the Appeals office is independent of other IRS departments; specifically the departments that make the rulings which may be subject to dispute. As a neutral party, the Appeals office can review the ruling and help the taxpayer and the government as an impartial mediator. This is beneficial to all parties as they try to reach an decision with which everyone is in agreement.  If you have received a notification from the IRS that a determination has been made which is eligible for appeal, and you feel that determination was made in error, know your rights and contact an Appeals office representative to further discuss the matter.

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Danielle Staub, the reality show’s “cast out” often attacked for viscous and rude behavior, has also been targeted by a group a little different than her fellow Housewives- The IRS. In March of 2006, Danielle reportedly had a $111,161 tax lien filed against her. And, just one year later in 2007, faced yet another lien. Perhaps Danielle should concentrate more on paying the IRS, rather than her plastic surgeon.

Caroline Manzo, contrasting Danielle as the sweet, mother-like figure of the wives, has also shown signs of monetary issues. On the surface, Caroline appears to be one of the most well off of the bunch, owning Jersey’s prestigious Brownstone event facility among other valuable assets. However, Caroline’s assets, including the infamous  Brownstone, have faced numerous judgments and liens against them, with the number currently standing at over thirty, since 1990.

For Housewife Dina Manzo, excessive spending on the Real Housewives series apparently was just not good enough. Thomas Manzo, Dina Manzo’s hubby, was allegedly sued by American Express for $12,599, following the couples lavish wedding featured on VH1′s My Big Fat Fabulous Wedding show.

Finally, housewife Jacqueline Laurita has demonstrated an inability ward off financial issues, too. Jacqueline and husband Chris have been unable to pay off their loans, recently filing  for liquidation under Chapter Seven in a U.S. Bankruptcy Court. Hey, at this rate, the court could be the wives’ all new hangout.

So, there you have it, five for five of the New Jersey housewives, famous for their extravagant and excessive lifestyles, may actually be less well off than the average Joe- or Josephine, if we are trying to stay in wife theme here. So what happens next? Perhaps the show will undergo a dramatic transformation and name change- The Real Workingwives of New Jersey? Doesn’t seem to have quite the ring to it. But who knows, anything seems to be possible with this bunch.

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Stage One of IRS Attack on Deadbeat Taxpayers – Letters in the Mail

If you skip filing your taxes for a few years, you’ll probably head to your mailbox one day and discover a letter asking what your problem is – although not in those exact words! The first and maybe the second letter you receive from the IRS will ask you about your debt and remind you that you owe income taxes. Soon after, you can expect to receive a FINAL NOTICE in the mail. This is the last notification you’ll receive from the IRS before they unleash the dogs and come after you for the money you owe. This would be a good time to make good on those debts!

Stage Two of IRS Attack on Deadbeat Taxpayers – IRS Levy

If the letters and FINAL NOTICE did not scare you into paying the money you owe, stay tuned for an IRS levy. A levy is when the IRS puts a hold on the funds in your bank accounts. You won’t be able to access the money in your bank account and if your check is being direct deposited, you can watch it disappear because you won’t have access to those either. Because an IRS levy is a federal lien on your bank account, there won’t be anything you – or the bank – can do to stop it.

Stage Three of IRS Attack on Deadbeat Taxpayers – Tax Lien

The IRS has the power to ruin your credit score for all of eternity. Well, at least through the end of your life. A tax lien can be placed on your credit, which means you won’t be able to apply for new credit. If you own a house, you might experience a tax lien placed on your home, which will make it impossible to renovate or sell. If you’re still standing by waiting to see what happens next and making no plans to pay the IRS owed taxes, you might see the tax liens turn into full blown “seizures”, where the IRS takes it upon themselves to sell your property to recover the tax debt you owe.

Stage Four of IRS Attack on Deadbeat Taxpayers – Wage Garnishment

If you were lucky enough not to have direct deposit of your paychecks when your bank was placed on hold, you can still lose your paycheck through wage garnishment. The IRS has the power to contact your employer and take up to 80% of your paycheck each pay period until your taxes are paid off.

Avoid Becoming a Deadbeat Taxpayer

Obviously, the solution to avoiding IRS attacks is to file your taxes and pay for any taxes owed. You don’t want to be on the receiving end of any of the above “attacks”; or put in jail with penalties up to $50,000 per year for not filing your income taxes. You can always file for extensions if you need more time, set up payment plans if you can’t afford to pay your taxes in full before they’re due, or use an agency designed to help individuals pay off back taxes.

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