If you’ve received a settlement for a lawsuit, you need to meet with an expert tax attorney right away and discuss the settlement with them. This is the best way to be absolutely certain about whether or not the settlement is taxable, information you need to have long before you file this year’s return.
The main thing that determines whether or not you have to pay taxes on your settlement is the type of settlement you’ve won. For example, if you were awarded a settlement because you were injured while in the hospital, it’s a non-taxable settlement. However, before you want to exclude it from your tax return, take a look at the itemized deductions you’ve made. If that same injury is on there, the IRS gets a chunk of your settlement.
Settlements that are taxable include:
• Punitive damages
• Interest on the settlement
• Defamation of character
• Mental/emotional suffering
Don’t be surprised if your tax attorney looks at your settlement and tells you that part of it is taxable while another isn’t. If the settlement you’ve won includes interest, you’ll need to report the exact amount of interest received on Form 1040, line 8a when you file your 2015 income tax return. Something else you need to keep in mind is that just because the federal government doesn’t require you to pay taxes on a settlement, your state might have different requirements.
The fact that you earned a settlement could be all it takes for the IRS to decide to audit you. It uses things like settlements and large increases in income as red flags to help determine which portion of the 1.1% of the population should be audited. The fact that there’s now an increased chance of you coming to the attention of the IRS, it’s extremely important that you avail yourself of the services provided by a tax evasion attorney. You should do this before filing your tax returns. The tax evasion attorney has a deep understanding of current tax laws and will go over every aspect of your situation and make sure a mistake hasn’t been made.
If you have filed your taxes without the assistance of an attorney, and are now being questioned by the IRS, you need to find a good lawyer right away. With their help, you should be able to prove that you made a genuine mistake on your forms or didn’t understand the law when you filed. You will still owe back taxes, but the mistake will only add a 20% penalty to what you owe, whereas if the IRS decides you made a willing error on your tax return, they’ll consider it tax fraud/evasion and the penalty attached to your outstanding bill will be 75%, and it will be very difficult to negotiate a settlement.
If you’re being audited and are worried you made an error on your tax return, the best time to contact a tax evasion attorney is immediately after receiving the notification from the IRS.
The 2015 tax bracket for a married couple filing jointly was 15% for families who earned between $18,451 and $74,900. While 15% may not sound like a lot of money, it really is when you consider the fact that the government wants their money as soon as possible. It can be very stressful if you have IRS tax debt. You have to understand that this is not an ordinary bill that you can ignore for a few months until you have some extra cash. It must be paid. The government can even garnish your wages if you are not paying your tax debt on time. Owing back taxes to the IRS can be a real problem for families that are struggling just to keep the lights on. The good news is there are some things that you can do in order to take care of this debt.
One of the first options you have when it comes to paying your IRS tax debt will be to pay it all, when you file your taxes. If you are planning on filing your taxes on time, and you have the money that you owe, you would be a lot better off simply attaching a check with your filing and mailing it all at the same time.
This will decrease your concerns because you will not have to worry about paying it back later. Some individuals will make the decision to pay with a credit or debit card. The IRS assesses steep interest on taxes paid late so sometimes it’s better to pay a lower interest rate and carry the debt on a credit card rather than letting tax debt remain unpaid with the IRS.
There are a lot of people that believe they can ask for an extension, and file their taxes late. This is true. You do have the option to do that. However, this is not going to give you any extra time for you to pay the amount that you owe. Even with an extension, you must provide an estimate of what you will owe and send that into the IRS before the first due date. You will most likely face penalties, and late fees as well, if you are not paying what you owe on time.
If you know that you can’t pay your IRS tax debt, file for a payment extension. This is only going to give you an extra three months to pay. You must be able to pay the entire amount within that time plus the interest and penalties that have been added. Your final option is to contact a tax attorney to represent you and petition the IRS to set up an installment agreement that allows you to break your tax debt down into regular monthly payments. This can ease the burden of tax debt and allow you to meet your obligations without sacrificing your ability to pay your basic living expenses. To learn more about your options to manage tax debt, contact an IRS tax relief attorney today.