The tax season this year started on January 28 despite a government shutdown in effect at that time. Most of the taxpayers are expected to file until April 15 (April 17 for taxpayers living in Maine or Massachusetts). A lot of people found this activity frustrating and time-consuming. However, this is one of the important activities of the year because being late will accumulate penalties for the taxpayer. How long does an average person prepare his or her taxes?
The Average Time Americans Prepare Their Tax Returns
According to the Taxpayer Burden Survey by the IRS, there is a big difference in time spent between a non-business taxpayer and a business taxpayer. On average, a non-business taxpayer, which represents 68% of all taxpayers, spends an average of 8 hours on their tax returns. Three hours is spent on recordkeeping, an hour for tax planning, another three hours for form completion and submission, and an hour for other tax-related things. The average cost spent is $110.
Meanwhile, business taxpayers, which represents 32% of taxpayers, spend a significantly longer time in their tax returns, which is 24 hours. Thirteen hours will be spent on recordkeeping, 3 hours for tax planning, 6 hours for form completion and submission, and 2 hours for other tax-related things. The average cost spent on filing is $410. Filing tax returns in a timely manner is important because it is a requirement for eligibility in the IRS Fresh Start Initiative.
What Is the IRS Fresh Start Initiative?
Previously known as the Fresh Start Program, the IRS Fresh Start Initiative is a series of changes in the policies and procedures of IRS collection. The changes aim to help individuals and small business taxpayers to pay their debt owed to the government. As of now, the Fresh Start Initiative has three important features that help taxpayers pay their tax debt.
The first one is via tax liens in which IRS increased the maximum amount a taxpayer can owe before it files a Notice of Federal Tax Lien. The second feature is through allowing installment agreements. This agreement allows individual taxpayers that owe $50,000 to pay through direct debit payments up to six years. And last but not least is the OIC or the Offers in Compromise Program. In this program, the IRS will have more flexibility in analyzing the taxpayer’s ability to pay.
What Are The Eligibility Requirements in the Fresh Start Initiative?
1. Filing all tax returns
Filing tax returns is the first thing to do before someone can avail for the Fresh Start Initiative. The IRS would want to know how much money you owe before deciding if you need help or not. After filing tax returns, the IRS will process this return. The processing of the returns might take a lot of time.
2. Configuring tax withholdings
Tax withholdings are usually taken directly in the paycheck if the person availing the initiative is an employee. The taxpayer can also adjust its withholdings by giving the employer a W-4 form. This step must be corrected six months before opting for Fresh Start. If there are other incomes, this untaxed income will help in increasing the amount withheld.
3. Prove inability to pay
The IRS will need to verify that the taxpayer availing the Fresh Start Initiative doesn’t have the capacity to pay for the tax debt due. This initiative is only aimed for taxpayers that have difficulty in paying. In order to be eligible, a taxpayer needs to prove his or her inability to pay.
4. Pay for required estimated tax payments
For small business owners and self-employed taxpayers, payment for estimated tax payments in four equal payments is required. For small business owners that operate with employees, the required federal tax deposits should be delivered. Failure to pay on time will render the taxpayer illegible for the initiative.
5. Avoid bankruptcy
Because a bankruptcy proceeding will remove the rights for tax relief, filing for bankruptcy will make the taxpayer illegible for the Fresh Start Initiative. In order to avail the initiative, a taxpayer must avoid filing for bankruptcy.
Seeking Professional Help
Negotiating with the IRS can be stressing and frustrating. A tax return filed is the basis of IRS and can be used against the taxpayer. If there are doubts about tax returns computation, seeking professional help is recommended. It is hard to argue with the IRS unless the taxpayer has a background in finance or tax laws.
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