Is IRS Debt Relief Going to Be Your Hero?

If you owe the IRS money, you may feel as if you’re in a hopeless position. The interest and fees the IRS adds to back taxes often amounts to a huge sum of money that may seem impossible to pay.

Don’t give up. If you owe the IRS money, you may qualify for debt relief. While this option is not for everyone and the application process is complex, debt relief provides a reprieve that can help you salvage your confidence, improve your finances, and get your life back. Discover four ways IRS debt relief can help you.

Avoid Wage Garnishments

Image via Flickr by Tax Credits

If you disregard your tax obligations, the IRS can garnish your wages. However, if you’re participating in a debt relief program, the agency won’t take this step. Going the debt relief route can save you the embarrassment and financial distress that accompanies wage garnishment.    

Reduce Your Tax Burden

Possibly the greatest benefit of debt relief is that it may reduce the amount of money you owe the IRS. Get professional help to try to make your tax debt more manageable. If you qualify for debt relief, you may be able to pay a reduced lump sum, called an Offer in Compromise. This option gives you the chance to pay a smaller amount of money as your full and final amount. 

You may also qualify for a long-term payment plan. This type of plan can allow you to pay off your tax debt at a reduced dollar amount over several months or years depending on the amount you owe.

Provide Stress Relief

Owing the IRS money is a huge stressor that can affect almost every aspect of your life, but qualifying for debt relief can help. If you’re able to reduce what you owe the IRS, the amount of stress you’re under can decrease. The plan the IRS will give you to follow can help with anxiety as well.

The payment plan you will use to pay off your tax debt can help you make short- and long-term financial goals. This flexibility can give you a sense of control that can help with stress and anxiety.

Improve Physical Health  

Mental health and physical health are intertwined and improving one can improve the other. Since you could likely enjoy decreased levels of stress after qualifying for a debt relief program, you may find that your physical health improves.

Stress can cause heart problems, digestive issues, sleep disorders, fatigue, and a host of other health problems. When they reduce stressors, people often find that many of their physical ailments diminish as well.  

Qualifying for debt relief from the IRS won’t solve your money problems, but it can lift some of the burdens that go along with them. While you still must pay the IRS what you owe, you may find you’re able to pay a reduced amount, enabling you to reduce your debt more quickly. Qualifying for debt relief can also allow you to avoid wage garnishment and the distress that accompanies it. These combined benefits can reduce your stress levels, possibly leading to improved mental and physical health.

James Dean Editor-in-Chief of MONEY.CA and Money Magazine found this article from Tax Crisis Institute to be helpful, informative and relative to tax problems and issues with the IRS.


Confetti season begins for 2013!

We start the New Year with the annual return of confetti season! You don’t know about it? Amazing!

Every year at this time, we begin the 3 month process of receiving pieces of paper called T-slips – I call them confetti. They come in white, beige, pink, blue, yellow and green. Some have stripes of other colours on them as well. Our Federal Government is one of the largest creators of this annual phenomenon. Charities are another group that create lots of these things and they add myriad colours to the collection.

Slightly tongue-in-cheek of course, however, our entire taxation system revolves around this annual festive period. Usually by the end of January the storm is well underway and continues usually until the end of March with some of the more tardy issuers dragging things out into April – regardless of the fact that most people file early to claim a refund and are now forced to file adjustments and/or send letters pleading for grace to our friends at the CRA.

As someone who prepares a couple of hundred returns of various types each year, I see this first hand and I get phone calls and emails from clients when slips appear late, or even worse after they get a Notice of Assessment that says they hadn’t reported all of their income on T-slips and CRA is applying penalties and interest.

I recommend that most clients wait until at least the 3rd week of March before even thinking about submitting their returns. There are regulatory deadlines established for all companies (and Governments) that issue T-slips are supposed to meet, but this very rarely happens because there are no significant consequences when these deadlines are missed – all to the detriment of taxpayors.

Losing, misplacing or never receiving all of the T-slips happen with great regularity yet even delays not caused by the taxpayor can result in CRA assessing penalties and interest for “failure to report” – and the client is then blacklisted (unofficially of course) for several years by CRA resulting in more audits and wasted time even when the error is caused by the Government failing to issue some slips on time or they have been sent to out-dated addresses.

So what can you do? Here are some pointers to make this easier for everyone:
a) notify Service Canada (by phone) of your correct address – this will catch everything issued by the Government.
b) notify every financial institution, by phone, email or fax of your account numbers and your current correct mailing address.
c) notify all charities to which you have contributed of your correct postal address.
d) notify all of your financial advisors of your correct postal address.
e) if you moved within the past 12 months, contact your local office of Canada Post and place an address forwarding notice on your old address – this should be in effect for at least 12 months to protect you!
f) immediately get a large brown envelope or 3-sided-closed file folder, label it T-SLIPS 2012 and keep it next to where you sort your daily mail. Each time a slip arrives, put it in the envelope or folder right away after noting the issuer, the amount and account number on the outside of the folder or envelope.
g) in the middle of March, compare your list with all of your annual account statements, bank records and your 2011 Tax Return, to see that you have everything and if a slip is missing, phone that issuer immediately!

These tips won’t guarantee everything arrives as it should, but it will reduce panic and errors! Cheers

Year-end tax planning – not too early!

Yes, I know it is just October 1st – 3 months to go but now is the right time to begin your year-end tax planning. Why? Avoid the rush and decisions made in haste tend to be either wrong or not sufficient.

I will start with RRSP and Spousal RRSP plans – start adding up any contributions you have already made in 2012 – going right back to January 2012 (yes, I know you probably claimed some or all of the January, February and March 1st contributions on your 2011 tax return), but get the detailed list anyway and then get your copy of your 2011 Tax Return and Notice of Assessment (NOA) and cross off contributions that were deducted and then compare your remaining deposits to your maximum Allowable RRSP Contribution Limit from the bottom of page 2 of your NOA. Plan now to make as many deposits as you can before year-end so your top-up cheque in early 2013 doesn’t put your bank account into over-draft.

Generally, deposits to RRSPs and Spousal RRSPs should be made into accounts for the spouse with the lowest potential post-retirement income (from all sources) so you can take maximum advantage of income-splitting opportunities.

TFSAs – Tax Free Savings Accounts – these operate on a CALENDAR-year basis – there is no 60-day grace period into the next tax year – so decide on what you can comfortably afford, and get it in now and where possible, ensure contributions end up in the hands of the spouse with the lowest potential income at retirement even though withdrawals from TFSAs are tax-free.

Charitable donations may or may not be part of your life, but if you are going to make them, now is the time to get them in so you can check to make sure you get your deductible receipts – sometimes they tend to get lost in the year-end crush – no receipt, no claim. So take the time check. Tax receipts can be claimed by either spouse so it doesn’t matter in whose name the receipt is issued.

Investment income can be planned and controlled within certain limits. Check with your financial advisor or planner to determine if you are going to have reportable losses that can be used to offset some or all of your gains. No-one can estimate year-end results – particularly in the current market conditions, but you can start to get a handle on where you currently sit and then arrange to meet with your advisor no later than the first week of December to make your final decisions about triggering losses or gains!

Medical and dental expenses are another important consideration as these also operate effectively on a calendar-year basis. If you know that you are going to need prescriptions re-filled or dental work completed, make sure you get them done before year-end so that you will have the maximum allowable claim – subject to the usual threshold of 3% of earnings.

We will look at other year-end issues and opportunities over the next few weeks. Cheers!

Investing Is Tough Stuff

By: Don Shaughnessy

Profit is a poor proxy for success and investors should not rely on the number without considering other facts.
Strangely a business can become bankrupt while it is profitable. This profit ambiguity causes problems for business owners, managers, policy makers and investors.
What do you mean by profit?
Suppose an incorporated business earns $1,000,000 using the tax rules and generally accepted accounting principles (GAAP) In Ontario, the tax bill would be $220,000 leaving $780,000 to invest. Clearly profitable!
BUT, only within the system of GAAP and taxation. In the real world, the result might well be very different.
Suppose the business must invest $1,500,000 to remain competitive in its industry, (same market share and same technology as the leaders in the industry.) Did it really make a profit or did it really lose $720,000?
The economic answer is it lost $720,000, and even that is not simple.
By investing the profits and borrowing, the business continues to exist and possibly a weak entrant in the industry will become weaker still and succumb. So the true long-term economic loss is actually somewhat smaller. Maybe a lot smaller and possibly not a loss at all. Some of the cash loss is an investment in future market share.
Management faces the task of deciding if they will survive long enough to benefit. Especially true if the government bails out the weak ones.
For those looking at profit alone, other expenses matter too. Marketing, advertising, R&D, employee training and more, pay off over long periods but have immediate cost. Good for tax expense but hard for the analysts to validate. Some other expenses, like pensions, have a visible price today but an unknowable future cost.
In both accounting and taxation, profit is not the result of facts but rather is the result of rules and opinions. Things like depreciation rate, inventory and product obsolescence, bad debts, investment rate to be earned on the pension fund, future technology effects and more.
As an investor, is there anything at all to be gleaned from the financial statements?
In most cases, it makes sense to pay attention to the management letter. I know a high performance fund manager who looks for the words challenge or challenging in that letter. If he sees either he throws the statement away. In his words, “I have only limited resources, so why would I invest with people who have challenges?”
When looking for an investment, use commons sense first. I like the product, I like management, I like the industry and so on. Then look at the numbers.
• “Cash is real, profit is opinion.” Or at least cash is more likely to be real because you go to jail if you fool with it. Not so much with profit.
• Look for dividends. They impose a discipline on management and the cash paid out reduces the homeless dollar problem. When management finds that problem, some pretty dodgy projects get funded.
• When things go wrong, quit quick. Holding losers and waiting for recovery is a losing tactic. The price of tulip bulbs, which peaked in Holland in February 1637, has, as yet, not returned to that high.
Good look!
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.