Michael T Burgett CPA

Tax Debt Settlement Scams – Did You Know?

When a taxpayer owes more tax than they can pay without extreme hardship, the IRS sometimes accepts an offer-in-compromise (OIC). Under an OIC agreement, the taxpayer may settle their tax debt for less than the full amount owed.

However, the IRS warns taxpayers to watch out for "OIC mills," agencies that churn out stacks of OIC applications, costing the taxpayers they supposedly represent thousands of dollars. Many of these agencies make unrealistic claims in radio, TV and internet ads about settling tax debts for "pennies on the dollar." Often, a taxpayer gets talked into paying an OIC mill to file an application that the agency knows will be rejected, because the taxpayer does not qualify for the OIC program. Even when the IRS accepts an application from an OIC mill, the excessive fees charged by the agency may still cause the taxpayer financial harm.

If you are considering an OIC to settle your tax bills, do not believe the hype. You may check your eligibility using the IRS' Offer In Compromise Pre-Qualifier tool with the link below. Working with a trusted tax professional can also determine whether you qualify for the OIC program, as well as help you prepare an application with a better chance of being accepted.

Offer In Compromise Pre-Qualifier tool: https://irs.treasury.gov/oic_pre_qualifier/

Earned Income Credit Eligibility - Did You Know?

The Earned Income Tax Credit (EITC) provides vital assistance to low- and middle-income workers and their families. Unfortunately, the IRS estimates that up to 20% of eligible individuals do not claim the EITC, potentially costing them thousands of dollars a year. For eligible workers with qualifying children, the maximum EITC amount for tax year 2023 is $7,430, up nearly $500 from 2022. Eligible workers without dependents may receive a credit of up to $600.

To qualify for the EITC, you must have earned income, and you and your qualifying children (and your spouse if you file a joint return) must all have Social Security numbers. Your adjusted gross income (AGI) must be below the limit for your filing status and number of children. For example, the 2023 AGI for a taxpayer with two qualifying children cannot exceed $52,918 if the taxpayer files under single or head of household status, or $59,478 if the taxpayer files a joint tax return. In addition, you cannot have more than $11,000 in investment income.

Because the EITC is fully refundable, you may receive the credit as an IRS refund even if you owe no tax. However, you must file a tax return to claim the credit. A tax professional can help you determine whether you qualify for the EITC, and if so, help you file a return electronically to get your refund as quickly as possible.

Hobby or Business - Did You Know?

Recent years have seen a rise in the number of people pursuing “side hustles,” such as delivery driving, dog walking and online craft selling. Many of these activities could be classified as either hobbies or business ventures, depending on how you pursue them. Since different tax rules apply for businesses and hobbies, it is important to know how the IRS will likely classify your side gig. The IRS considers a variety of questions, including:

- Do you depend on the activity for your livelihood?
- Do you pursue the activity in a professional, businesslike manner, and keep detailed records?
- Is the activity currently profitable for you, and if not, is there good reason to believe it will become consistently profitable in future years?
- Do you have the knowledge and skills needed to pursue the activity as a business?
- Do you approach the activity in a way that shows the intent to make a profit, such as changing methods to boost revenues?

In many cases, business income is subject to both income and self-employment tax, whereas hobbies may be subject to income tax. However, pursuing an activity as a business may enable you to reduce your taxable income by deducting business expenses, such as supplies, business vehicle use, and home office costs. A tax professional can help you determine how your side gigs should be classified, and how to account for that classification in your tax planning.