Abatement is a reduction or exemption on the level of taxation owed by an individual or business. Can be in the form of a tax decrease, a reduction in penalties, a rebate, or any combination thereof.
Example of abatement: If a town or other local government wants to keep businesses in its community, they may issue a tax abatement in the form of general business taxes.
A beneficiary is the person or entity who is designated to receive the benefits or property owned by someone else. They often receive such benefits as part of an inheritance after the death of the property owner. The beneficiary is not necessarily the executor, who is in charge of distributing assets to the proper beneficiaries.
Q: What kinds of properties have designated beneficiaries?
A: Life insurance policies and retirement accounts are the most common assets to which people assign a beneficiary. There are non-retirement financial accounts, called TOD (transfer on death) accounts, that can also have beneficiaries named on them.
A capital expenditure is the purchase of assets whose usefulness or value to a company exceeds one year. These will typically be more expensive purchases, such as facilities, computer equipment, machinery, or vehicles. Research and development or patents are also often considered capital expenditures.
Q: How are capital expenditures deducted?
A: These will not be fully deducted in the tax year in which they were purchased. Instead, they will be deducted gradually, also known as depreciation, over the course of the asset’s life. For instance, a new computer may have a “life span” of five years, so the company will deduct 20% of the computer’s value each year for five years (at least with standard depreciation).
A constructive receipt is when you have the ability to control or utilize funds even if you are not in direct possession of them or if you are guaranteed to be able to use them in the future. You have to pay tax on income for the year in which it was constructively received, rather than the year it actually came into your possession.
Example of constructive receipt
If you receive a paycheck from your employer on December 30, 2022 but you don’t actually deposit it until January 3, 2023, you would still include it in your 2022 taxable income.
Enforced collections are when the IRS is legally required to take enforcement action if taxes are not paid in a timely manner without providing notification as to why that is.
Q: What types of enforced action can the IRS take?
A: Potential IRS enforced collections actions may include issuing a notice of levy (see Levy entry), assessing a trust fund recovery penalty, or issuing a summons to the taxpayer to prepare their tax return or determine ability to pay. For more information about enforced collections and resolution options, see our tax relief resources.
An excise tax is a tax imposed on a specific good, service, or activity. They can be imposed on the manufacturer, retailer, or the consumer, depending on the tax. They can take the form of a fixed percentage tax or fixed dollar amounts.
Q: What kinds of goods are subject to excise tax?
A: Petroleum, coal, sports betting, marijuana, and indoor tanning are just a few examples of goods/services that are subject to excise taxes.
The fresh start program is a collection of tax relief programs offered by the IRS to help taxpayers repay their tax debt. Includes Installment Agreements, Penalty Abatement, Innocent Spouse Relief, and more.
Q: How do I know which Fresh Start Program is right for me?
A: You won’t necessarily qualify for every program that they offer, so contact your Boxelder tax relief specialist to see which program you should pursue.
Head of Household Filing Status
The head of household filing status is the filing status for unmarried taxpayers who support and house a qualifying person.
Q: How is it different from filing as “single”?
A: To file as a head of household, you need to meet the following requirements:
- You are unmarried as of the last day of the year.
- You paid more than half the cost for keeping up a home for the year
- A qualifying person, such as a child, lives with you in the home for more than half the year. A dependent parent will qualify even if they do not live in the home.
Investment income includes taxable and tax-exempt interest, dividends, capital gains net income, certain rent and royalty income, and net passive activity income.
Q: What is net investment income (NII)?
A: Net investment income is income received from investment assets (before taxes) such as bonds, stocks, mutual funds, loans, and other investments. NII is subject to a 3.8% tax and applies to individuals with an NII above a certain level. This tax can also apply to estates and trusts under certain conditions.
A levy is a legal seizure of your property to satisfy a debt. This could take the form of taking money in your bank or other financial accounts. It could also mean seizing and selling your vehicle(s), real estate, or other personal property.
Q: Can I get a levy released?
A: If you received a notice of the IRS’ intent to levy, contact your Boxelder tax expert immediately to take the necessary steps toward resolving your tax debt or liability. Releasing the levy does not release you from having to pay the debt that you owe, so make sure you have a plan to pay your taxes owed.
Liens are defined as the right to maintain ownership of property belonging to another person until a debt owed by that person is paid or forgiven. A federal tax lien is when the government has the legal claim against your property when you do not pay a tax debt. Such property can include real estate, personal property, or financial assets. Unlike a levy, you will still have possession of your property, but will not own it until the debt is paid.
Q: What do I do if I receive a Notice of a Federal Tax Lien?
A: Paying off the debt is the best way to respond to collections actions. However, if this is not possible, there are other options. Boxelder Consulting’s licensed tax attorneys are here to help you resolve your lien and get your business back on track.
Limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities.
Q: What are the benefits of an LLC?
A: There are two main advantages. The first is that it prevents owners from being held personally responsible for debts of the company. It also allows all profits to be passed directly to those owners to be taxed as personal income, thus avoiding double taxation.
A luxury tax is a tax paid on expensive goods and services that the government considered nonessential and available only to the wealthiest consumers.
Q; What types of things have a luxury tax?
A: Expensive furs, jewelry, cars, yachts, and aircraft, among other things, are all often subject to luxury tax.
A notice of income tax deficiency is what happens when the amount of taxes you reported on your return is different from what the IRS calculates that you owe from what your employers reported as your income. It is also sometimes called a CP3219A Notice.
Q: What should I do if I receive a notice of tax deficiency?
A: Whether you agree with the changes or not, you will fill out and sign Form 5564, which should have been enclosed with your notice. Your Boxelder tax attorney will guide you through every step of the process and bring your
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. OICs are not for everyone, so it’s a good idea to check your eligibility through the Offer in Compromise Pre-Qualifier Tool. For many people, these will be the best option. However, they are also the most intensive.
Choosing this route means opening yourself up to substantial financial review, meaning that it can often be much more efficient to opt for another option. Regardless, your Boxelder tax professional can walk you through the best options for your unique circumstances.
Q: What do I do if I’m not qualified for an Offer in Compromise?
A: Just because you can’t utilize this program doesn’t mean that you don’t qualify for other tax relief solutions. Contact a Boxelder tax relief expert to chart your best course of action for repaying your tax debt.
Payroll taxes include the taxes that employees and employers pay on wages, tips, and salaries. For employees, taxes are withheld from their paychecks and paid to the government by the employer. They include federal, state, and local income taxes as well as the employee’s share of Social Security and Medicare taxes.
A personal exemption was a specific amount of money that could be deducted for yourself and each of your dependents. The amount changed every year, so in 2017, the personal exemption was $4,050 per person.
Q: Does the personal exemption still exist?
A: The personal exemption was eliminated starting for the 2018 tax year.
Recapture of Depreciation
A recapture of depreciation is the gain received by the sale of depreciable capital property, which must be reported as ordinary income for tax purposes. This is meant to offset the deductions that were made on this item as it was depreciating.
Example of Depreciation Recapture
If you bought a piece of capital for $10,000 and had a depreciation expense of $2,000 per year, the adjusted cost basis would be $10,000 – ($2,000 x 4) = $2,000 after four years. If you were to sell this capital for $3,000, you would have a taxable gain of $1,000 (since the cost basis is $2,000). That $1,000 would then be considered ordinary income, and thus, taxable.
A standard deduction is the dollar amount you’re allowed to take on your tax return to reduce your overall taxable income. This number is adjusted every year for inflation. To learn more about this year’s standard deduction, check out our blog.
Q: Can anyone claim a standard deduction?
A: There are a few cases where one is not eligible for standard deduction. The most common ineligibility is if you or your spouse choose to itemize deductions, even if you filed separately. Individuals who are nonresident aliens or dual status aliens during the year, individuals who file a return for a period of less than 12 months are also ineligible for the standard deduction. Finally, estates, trusts, common trust funds, and partnerships are not able to take a standard deduction.
This amendment to the State of Colorado’s Constitution limits the amount of revenue that the state government can retain and spend.
Q: What happens when taxes exceed the TABOR limit?
A: When this happens, the surplus is refunded to the taxpayers in the form of a local government property tax exemption reimbursement, a temporary income tax rate reduction, a sales tax refund, or Colorado Cash Back, as was the case in 2021-22.
The taxpayers’ bill of rights is a set of 10 fundamental rights that every taxpayer has when working with the IRS. The 10 rights included in the Taxpayer Bill of Rights are:
- The right to be informed
- The right to quality service
- The right to pay no more than the correct amount of tax
- The right to challenge the IRS’ position and be heard
- The right to appeal an IRS decision in an independent forum
- The right to finality
- The right to privacy
- The right to confidentiality
- The right to retain representation
- The right to a fair and just tax system
Tax avoidance is the use of legal methods to reduce taxable income. This could be claiming deductions, utilizing tax credits, and investing in tax-advantaged IRAs or 401(k)s.
Tax evasion is the intentional illegal non-payment or under-payment of taxes. This generally comes from declaring less income, profits, or gains than the amount actually owed or by overstating deductions.
Q: What are the penalties for tax evasion?
A: If you are found to have intentionally failed to pay or underpaid your taxes owed, you can face a felony charge, up to five years in jail, a fine of up to $250,000, and a bill for the prosecution costs. You could also face several kinds of civil penalties.
Taxpayer Advocate Service
The taxpayer advocate service is an independent organization within the IRS whose employees help taxpayers resolve tax issues that have not been solved through previous attempts.
Q: What are the eligibility requirements for the Taxpayer Advocate Service?
A: The Taxpayer Advocate Service is designed for people who are a) experiencing economic harm or significant costs for things like legal representation, b) experiencing a delay of more than 30 days for resolution of their tax issues, and c) still waiting on a response or resolution after the date that was promised by the IRS.
Wage garnishment is a court-ordered deduction from an employee’s pay to satisfy a debt or legal obligation. They are usually set as a percentage of wages rather than a dollar amount.
Q: What kinds of debts are satisfied by wage garnishments?
A: Garnishments can be used to pay child support, unpaid taxes, credit card debt, defaulted student loans, medical bills, and outstanding court fees.
Withholding tax is the money that an employer deducts from an employee’s wages and pays directly to the government. This money is put toward the income tax owed to the IRS each year.
Q: What if the amount withheld is different than what I owe?
A: If too much is withheld, you will receive a refund when you file your taxes. If not enough is withheld, you will owe money to the IRS.