This situation is definitely common. Because of all the tax loopholes, the rich get away with not paying taxes. The poor end up paying more to the IRS than they do, as an outcome.

At times this is real. Tax professionals can determine tax loopholes to keep their clients' money out of the IRS's hands, and most people who make over $100,000 yearly can avail of their counsel. There have definitely been some abuses over the years. The IRS has since initiated a crack down on people abusing the tax code loopholes. There is a difference between acting illegally and acting on a tax loophole if you want to give less to the government by lowering tax liability. You'll also end up in jail if you act illegally. For the IRS to stay away, there are various steps you should avoid and some things you can do to safeguard yourself.

Nearly 60% of all taxes are paid by people who make over $100,000 yearly. The people within this range have a higher likelihood of being audited because the IRS focuses their attention on them. In case there is an IRS issue or audit, always save vital records to use as a reference and keep your exposure to a minimum.

How they're cheating the IRS out of taxes via offshore accounts are what most people like to show off about. These people normally get caught. This is because the IRS has a fraud hotline where anyone who turns in such offenders are rewarded up to 10% of the amount settled. Such offenders can get their dues if you keep your ears alert.

You have likely heard of 'secret' ways and strategies to avoid paying taxes to the IRS. The tax code is available to anyone who wants to examine it. Are there really many secrets out there? These 'secret' methods sold to people have been rejected by the IRS and in court. Not only will you face rejection, you can be penalized up to $25,000 for blatantly wasting the government's time with a frivolous tax return.

A loophole that business owners often abuse is the deduction of business expenses. They often try to deduct personal expenses as business expenses, prompting the IRS to audit them. It is best to distinguish between business and personal expenses if you don't want IRS problems on your hands.

Darrin T. Mish is an experienced, nationally recognized tax attorney who has been practicing tax law for over a decade. He has an AV rating by Martindale-Hubbell and has been honored with a listing in Martindale-Hubbell’s Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers, and with that in mind, he travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is also a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 888-GET-MISH.

How to Legally Keep Your Money Out of the Hands of the IRS is a post from: IRS Tax Problem Solver Blog - IRS Help

If you are a wise taxpayer, you know you should not pay the government more or less than what you owe in taxes to avoid IRS problems. What numerous taxpayers don't realize is that there are particular income types that the government cannot collect taxes on legally.

The IRS cannot tax certain income types because it is not allowed by tax law. You can keep your money if you know what the IRS can't tax you with, but to avoid tax issues, you must do it correctly.

Investment instruments are one type that are tax-free . These are state-issued bonds more commonly known as municipal bonds that are free from federal taxes. The tax benefit of these bonds increase when your tax rate increases, meaning their value rises with a raise in your overall income.

Making money from a car pool is another form of income that cannot be taxed. You won't have IRS issues if you exclude your profits from a car pool.

Selling your home is another income source that's excluded from taxes. If you sell your house, you can exclude up to $250,000 in profits, $500,000 if you file a joint return with your spouse. This exclusion can be claimed every two years. If you sell your home after less than 2 years, you can also claim a partial exclusion. There are many restrictions, so it is advised to consult a tax professional to make sure that you are doing this correctly.

Getting a raise does not just mean getting an increased paycheck amount. You can opt to have your employer cover the cost of a better insurance option or a higher healthcare plan. You won't need to handle potential IRS problems because the IRS won't be able to tax your raise.

Darrin T. Mish is a veteran tax attorney with over a decade of experience. He is nationally recognized with an AV rating by Martindale-Hubbell and has been honored by a listing in Martindale-Hubbell’s Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With a passion for providing IRS help to taxpayers with both individual and payroll tax problems, his firm only focuses on representing clients in the United States with IRS Problems. He also spends a great deal of time traveling the nation providing training to attorneys, CPAs and Enrolled Agents on how to handle their toughest cases with the IRS. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 888-GET-MISH.

Pay Less Tax, Find Out What Types of Income the IRS Cannot Tax is a post from: IRS Tax Problem Solver Blog - IRS Help

Because you do not want to end up having to pay the IRS money at tax time, choosing the right amount to withhold in your W-4 form can be tricky. You also would not like to get a substantial tax reimbursement at the end of the tax year if you're smart, because that means you let the government borrow your money sans interest. You might be paying less than what you should and be able to maximize your efficiency in paying taxes when you correctly adjust your tax withholding.

People assume ending up with a tax refund after filing taxes is a positive thing, like a savings account. However, the government is essentially borrowing your money minus interest. There are much better ways to have the money deducted without you ever really noticing the difference. One of the options is to simply have that portion of money taken out of your paycheck automatically and deposited into an interest-bearing savings account or mutual fund. If you believe it won't make a difference, think again. Why do you think you have a large tax refund? It all adds up, that's why.

What you owe in taxes should be only what you need to pay. As your exemptions might shift within the year, regularly reviewing them makes sure that your tax withholding is right. A great time to do this is in early November to provide you time to make alterations. When you've filed your tax return, review your tax withholding again and make sure your tax record is updated.

Not being able to claim somebody as dependent, getting divorced, bearing a child, or getting married are a few situations when you must check your withholding. To make sure you do not end up underpaying or overpaying the IRS and have an IRS problem, review the amounts of your tax withholding.

By correctly filling out your W-4 worksheet, you could easily avoid paying the IRS a significant amount of money. It is easier than it seems at first if you take the time to accomplish the right withholding amount.

Depending on your specific situation, it may be advantageous to consult your withholding levels with a tax preparer. You can always update and alter the withholding amount several times a year, even if you've already accomplished the W-4 at your present job. You wish to ensure that you only pay what you owe to the IRS, so review the amount of your tax withholding if you get promoted or change to a lower paying job. Doing so will help you avoid a big IRS problem.

Darrin T. Mish is a Nationally recognized Attorney whose practice focuses on representing clients across the United States with IRS Problems. He is AV rated by Martindale-Hubbell and is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. He has been honored by a listing in Martindale-Hubbell's Bar Register of Preeminent Lawyers. His passion is providing IRS help to taxpayers with both individual and payroll tax problems. He also spends a great deal of time traveling the nation providing training to attorneys, CPAs and Enrolled Agents on how to handle their toughest cases with the IRS. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 888-GET-MISH.

Pay Less When You Adjust Your Federal Withholding Tax is a post from: IRS Tax Problem Solver Blog - IRS Help

By Thomas Phelan

It’s tax season again, and that means millions of Americans are reviewing their finances. Ultimately, we’re seeking the answer to the same basic question: "Is there a way improve the performance of my investments AND keep more of those profits to myself, rather than handing them over to the IRS?"

The answer is "yes" on both counts.

You may have seen my past articles in ETR describing exactly how you can achieve those goals. I’m talking about harnessing the power of "non-traditional" retirement accounts that allow you to invest tax-advantaged in real estate, businesses, and other non-Wall Street fare.

There are several types of non-traditional retirement accounts to choose from, including the Solo Roth, SEP, Roth IRA, and the increasingly popular Self-Directed IRA. Each plan appeals to a different type of investor, depending upon his or her personal situation.

Today, I’d like to tell you about the Individual or Solo 401(k), as opposed to a Company or Employer-Sponsored 401(k)). It’s a little-known plan that could allow you to sock away as much as $49,500 (or $99,000 total for a married couple) of tax advantaged money this year. That’s far more than most plans allow, and it provides you with considerable investing power.

Who Can Benefit From the Solo 401(k)?

The Solo 401(k) is designed for independent contractors or small-business owners who have no employees. And even if you work for somebody else as an employee, you may still qualify for a Solo 401(k). If, for instance, you have a business on the side (such as investing in real estate).

Just to clarify, while your business cannot have a single employee who receives a W2 from you, you may employ contract workers who receive a 1099. And if you are married, you can be in the business together and belong to the same 401(k) plan – and, thus, you can invest together.

The Solo 401(k) is a powerful tool with several distinct advantages for investors.

7 Distinct Advantages of This Retirement Plan

With a Solo 401(k) plan, small-business owners can take control of their investment choices. That could mean putting money back into the business or buying real estate or other non-traded assets (such as notes, mortgages, or trust deeds). And, if you qualify for the plan, you may be able to sock away far more money tax-advantaged than would otherwise be possible. Let’s take a look at seven of the distinct advantages you’ll have as an investor with a Solo 401(k).

1. You write the checks directly from your account, which means you can fund an investment much faster than you can with a Self-Directed IRA or SEP. (No need to submit a Buy Direction Letter or Form to your IRA custodian.)
2. You can use mortgage financing as leverage and, unlike a Self-Directed IRA that holds real estate, any net cash flow won’t be subject to Unrelated Business Income Tax (UBIT).
3. If you set your small business up as an LLC, with yourself as the employee, you can contribute $15,500 annually (plus an additional $5,000 catch-up if you’re 50 or older) to a Tax Free Roth account inside the Solo 401(k).
4. With your business set up as an LLC, you can also (this time as the employer) defer up to an additional $24,000 in earned income into the same Tax Free Roth account inside the Solo 401(k).
5. Your spouse can be part of the same LLC that sponsors the Solo 401(k), and he or she, too, can contribute $15,500 annually into a Tax Free Roth account (plus an additional $5,000 catch-up if he or she is 50 or older).
6. There is no income "ceiling" with a Solo 401(k) plan, in contrast to other plans (such as the Roth IRA), where you cannot earn more than $110,000 as an individual or $160,000 filing jointly.
7. You can borrow up to $50,000.

In other words, you can use a Solo 401(k) account to invest far more funds tax-advantaged than would otherwise be possible. As I said, a husband and wife can contribute as much as $49,500 each for a total of $99,000, whereas an IRA or Self-Directed IRA (traditional or ROTH) has a maximum contribution of $4,000 annually (plus an additional $1,000 catch-up if you’re over the age of 50). And your funds don’t have to be invested in Wall Street products. You can invest in your business, or even buy real estate with a mortgage.

The Solo 401(k) can be a great option for people with a high income or a business with no employees if they are looking for a way to avoid taxes and have greater flexibility with their retirement planning.

Whether the Solo 401(k) is the best plan for you depends on your personal situation. But it is worth doing your homework to determine if you are maximizing your retirement savings with your current plan… or if there is room for significant improvements with a non-traditional plan.

[Ed. Note: Tom Phelan is a leading real estate tax-loophole expert specializing in helping individuals retire years, even decades, sooner than they ever dreamed possible. Tom travels the nation speaking to CPAs, realtors, lawyers, mortgage brokers, and individuals about 1031 Exchanges and Self-Directed IRAs. He is also the co-author of ETR’s Million Dollar IRA and 1031 Exchange programs.]

One of the Lesser-Known Ways to (Legally) Give Uncle Sam the "Slip" This Tax Season is a post from: IRS Tax Problem Solver Blog - IRS Help

The number of natural disasters that have hit the United States in the last several years has caused many businesses to hire additional workers to help them meet increased demand for their goods or services. These businesses must classify their workers properly to make sure everyone can meet their tax obligations. Occasionally, an employer does make an error and classifies an employee as an independent contractor and has to correct that mistake.

When an employer does incorrectly classify an employee as an independent contractor, the employer is still responsible for paying the employee’s federal income tax withholding and the employee’s share of Federal Insurance Contributions Act (FICA)/Railroad Retirement Tax Act (RRTA), even if it was not withheld from the employee’s wages. The employer still must pay the employer’s share of matching FICA/RRTA and Federal Unemployment Tax (FUTA). Penalties and interest may also apply.

IRS relief

All these payments can add up for the employer, but the good news is that the Internal Revenue Service does provide some relief for employers who have made a classification error. Internal Revenue Code Section 3509 provides an opportunity to correct the tax treatment of misclassified employees. Code Sec. 3509 provides reduced rates for the employee’s share of FICA taxes and for the federal income tax that should have been withheld. Employers are still responsible for the full amount of their share of FICA taxes. Code Sec. 3509 does not provide a reduced FUTA rate.

If the employee does not qualify for the reduced rates under Code Sec.3509, the employer may still be relieved from paying the federal income tax that should have been withheld from the employee. They need to provide evidence that the employee reported the income on their federal income tax return and paid the federal income tax due. The employer who requests this relief must have the employee sign a Form 4669 (Employee Wage Statement) stating that the income was reported and the taxes attributable to the income have been paid.

Form 4670

The employer must complete and sign Form 4670, Request of Relief from Payment of Income Tax Withholding, and submit this form along with any properly executed Form(s) 4669 to request relief from payment of this tax liability. This does not relieve employers of any penalties or additions to tax for failure to withhold the tax.

However, an employer will not owe employment taxes for misclassified workers if they meet all three requirements described in Sect. 530 of the Revenue Act of 1978, Publication 1976, Independent Contractor or Employee?:

• The employer must have had a reasonable basis for not treating the workers as employees.
• The employer (and any predecessor business) must have treated the workers and any similar workers as independent contractors for all applicable periods beginning after December 31, 1977.
• The employer must have filed Form 1099 MISC (Miscellaneous Income), for each worker, if such form was required.

If the employer meets the Section 530 requirements, the section provides businesses with relief from federal employment tax. It terminates the business’s, not the worker’s, employment tax liability (attributable to such workers) under Internal Revenue Code (IRC) Subtitle C (Federal Insurance Contributions Act (FICA)/Railroad Retirement Tax Act taxes, federal income tax withholding, and Federal Unemployment Tax Act (FUTA) taxes, and any interest or penalties attributable to the liability for employment taxes (Rev. Proc. 85-18, 1985-1 C.B. 518).

However, the Section 530 relief provision does not apply in the case of a worker who, pursuant to an arrangement between the business and a client, provides technical services for that client as an engineer, designer, drafter, computer programmer, systems analyst or other similarly skilled worker engaged in a similar line of work. (Social Security Administration/Internal Revenue Service Reporter, Fall 2006.)

Additional information available

For additional information on the worker classification issue, see:

• IRS Headliner 152, (http://www.irs.gov/businesses/small/article/0,,id=155756,00.html), IRS Offers Tips on How to Correct Misclassification of Employees.
• Publication 15-A, (http://www.irs.gov/pub/irs-pub/p15A_05.pdf) Employer’s Supplemental Tax Guide.
• Publication 1779, (http://www.irs.gov/pub/irs-pub/1799.pdf) Independent Contractor or Employee?

IRS offers tips on correcting misclassified employee reporting is a post from: IRS Tax Problem Solver Blog - IRS Help