Solve Your Tax Trouble on National Get Out of The Doghouse Day

Time to get out of the dog house!

If you have “tax problems” then there is no better day to start dealing with them than National Get Out of The Doghouse Day! No, this is not some dreamed up holiday to sell greeting cards and it is actually real. Don’t believe us? Then check out this post over at the National Day calendar and you’ll see that it’s on the third Monday of July. So if you’re not sure how to get out of the dog house with the IRS or the state tax authorities, then here are 5 things you can do:

Open your mail.

When clients come to us to tackle their back taxes, many will often have several if not a dozen (or two) unopened letters. These may be from the Internal Revenue Service (IRS) of their state department of revenue. While many feel that not opening the letters keeps the problem at bay, it can actually make things worse. Did you know that many times when the IRS is attempting to assess a tax to someone, that they have to give them a chance to disagree? But there often comes a time where they give you a window, say 90 days, before what they propose becomes reality. If you fail to respond, you can get stuck with something that isn’t actually reality.

So the single best thing you can do to solve your tax problem is open your mail AND read it. What the letter says is actually not as bad as you think. Plus, there is no way that opening your mail is going to make the situation worse!

Address any unfiled tax returns.

One of the biggest tax cases that we worked on involved a taxpayer who had not filed since 1999. It was 2014 when we were getting involved with their matter. That’s 15 years of unfiled taxes! But don’t worry, according to the IRS Data Book SOI Tax Stats, there were over 13.1 million taxpayers with unfiled returns. So if you have unfiled returns, then know that you are not alone.

People fall behind on filing their tax returns for many reasons. Health issues, death of a loved one, fear, procrastination all have a place in keeping people from filing. But the one thing we see come up routinely is “I did’t file because I know I owe and I can’t pay it.” While this may be a true statement, it shouldn’t stop one from filing. Filing on time is best, but filing late is better than not filing. Similarly, not paying your taxes isn’t good, but paying late is better than not paying at all. There are penalties for not filling and not paying, but they are only calculated ONCE YOU FILE. And if you can’t pay what you owe? We’ll the IRS is always willing to set up a payment plan (installment agreement) with you to settle up.

If you have unfiled returns, you might want to talk to a tax advisor (see last point) prior to filing. While it may seem “correct” to file all of the unfiled tax returns, it may not be needed. While the IRS can “technically” ask for the last 10 years of unfiled returns, it often doesn’t. Furthermore, if you are owed a refund on any of those unfiled returns, the IRS will only issue it for the last 3 years. Anything older than that will be refortified due to the statute of limitations. As such, a tax advisor can help you determine what returns need to be filed to help you get back into the good graces of the IRS or the state.

Identify the root cause of your problem and face it head on.

We’ve all heard that insanity is doing the same thing over and over expecting to get a different result. Well, if you keep finding yourself in tax trouble, maybe you should figure out what is not working and change it. For example:

  • Have more taxes withheld from your check by decreasing your withholdings on your W4
  • Don’t claim “exempt” on your W4 unless you ARE actually exempt from paying income taxes (hint – most people aren’t exempt)
  • Start paying estimated taxes if you are self employed or your income is reported to you on a Form 1099-MISC or Form 1099-K
  • Withhold from your retirement income or social security if you are retired and constantly find yourself owing the government
  • Make sure that you are claiming all the deductions and credits you are entitled to
  • Review your filing status and make sure that you are using the one that is most advantageous to your situation (e.g. Head of Household if you are a single parent)

Reach out to the tax authorities.

Putting your head in the sand is not going to solve the issue. If you contact the IRS, they can tell you the current status of your account as well as what they want you to do to solve your tax matter. For example, they can tell you want years they want you to file and even give you copies of the tax records you need to file them if you’ve lost your records (it’s called a Wage & Income Transcript).

To reach out to the IRS, start with the last notice that you’ve received. It will have an address on the top left hand corner and a contact name and/or phone number in the top right hand corner. This will be the best contact to use because the folks at that number will understand what’s going on with your account as of now.

But if you’ve lost the notice or you have other issues, you can call the IRS at 1-800-829-1040, Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time. If you’re calling about a business tax account, call 1-800-829-4933, Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time. If you have a hearing impairment, call 1-800-829-4059 (TDD), Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time.

Find a qualified tax advisor if needed.

Many people (approximately 40%) use software to prepare their tax returns. But if you get into tax trouble, a qualified tax advisor can be well worth their weight in gold. We don’t recommend that you shop for one based on price, but we do recommend that you find a person/firm that is open AFTER April 15th. Remember, the IRS doesn’t typically contact you during tax season and the notices associated with their matching program typically are sent between March and October following the year the return was due (e.g. 2019 for TY 2017 returns that were due in calendar year 2018).

To that end, you want to find someone who:

  • understands tax (i.e. filing returns), tax debt issues and has experience resolving YOUR particular situation
  • has the credentials to represent you before the IRS so you don’t have to ever speak to them (e.g. EA, CPA, JD)
  • has a good personality fit with you as the two of you will have to work closely with one another

Need tax help?

We routinely help taxpayers get current and compliant and enter into resolution options with the IRS or state. Do you need help? Feel free to check out this page of our site then shoot us an email or give us a call. The sooner you do, the sooner you can but your tax nightmares behind you and get out of the doghouse!

What does my IRS notice mean?

You go to the mailbox and one of the letters has a return address that sends chills down your spine: IRS. While most people don’t like being contacted by the IRS, many of their letters are no cause for panic because they are not audit related.  However, they should also not be ignored as some of them are time bound and require a response. This post will discuss some of the common notices the IRS sends and how to interpret what it means.

IRS notice types

The IRS sends notices for many reasons: bills for overdue taxes, requests for you to file a missing tax return, to request additional information about something, notify you of a pending deadline, etc. When the IRS sends a letter via certified mail, it’s giving you legal notice that they intend to levy you, file a lien against you, or that they will examine or audit you or your business.  The notice will ALWAYS thoroughly explain why you are receiving it. READ IT.

The very bottom of this post list some of the many notices that the IRS sends and provides you with a brief explanation. If you click on the green notice number, you will be taken to the IRS site where you can read some further details about that particular notice. If you want to see examples of the notices listed, then click this link and sort the notices by name to find the one your’re looking for.

What IRS notices are particularly important?

Any of the notices that deal with collections, should be “handled with care” so to speak. Why? Because if one doesn’t address them, they could find themselves on the wrong side of the IRS pretty quick. What are these notices?

CP503We have not heard from you and you still have an unpaid balance on one of your tax accounts.
CP504You have an unpaid amount due on your account. If you do not pay the amount due immediately, the IRS will seize (levy) your state income tax refund and apply it to pay the amount you owe.
CP504BYou have an unpaid amount due on your account. If you do not pay the amount due immediately, the IRS will seize (levy) certain property or rights to property and apply it to pay the amount you owe.
Letter 1058
We haven’t received your payment for overdue taxes. We intend to seize your property or rights to property (levy). You must contact us immediately.

What if you still don’t understand the notice after reading it?

We can help via our notice evaluation service. For $75 we will analyze your notice and provide you with a detailed explanation (in plain english) of what it means. We’ll also review your IRS account (with your consent and the filing of some paperwork) if you have debt and even provide your IRS CSED (the date your IRS debt will expire).

Call us at (773) 239-8850 or click our email address at the bottom of this screen to get started.

Common IRS notices

Notice NumberDescription
CP01HYou received a CP 01H notice because we were unable to process your tax return. The IRS has locked your account because the Social Security Administration informed us that the Social Security number (SSN) of the primary or secondary taxpayer on the return belongs to someone who was deceased prior to the current tax year.
CP04Our records show that you or your spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice. As a result, you may be eligible for tax deferment.
CP08You may qualify for the Additional Child Tax Credit and be entitled to some additional money.
CP09We’ve sent you this notice because our records indicate you may be eligible for the Earned Income Credit (EIC), but didn’t claim it on your tax return.
CP10We made a change(s) to your return because we believe there’s a miscalculation. This change(s) affected the estimated tax payment you wanted applied to your taxes for next year.
CP10AWe made a change(s) to your return because we believe there’s a miscalculation involving your Earned Income Credit. This change(s) affected the estimated tax payment you wanted applied to your taxes for next year.
CP11We made changes to your return because we believe there’s a miscalculation. You owe money on your taxes as a result of these changes.
CP11AWe made changes to your return because we believe there’s a miscalculation involving your Earned Income Credit. You owe money on your taxes as a result of these changes.
CP12
We issue a CP12 Notice when we correct one or more mistakes on your tax return, and a payment becomes an overpayment, or an original overpayment amount has changed.
CP12AWe made changes to correct the Earned Income Credit (EIC) claimed on your tax return.
CP12EWe made changes to correct a miscalculation on your return.
CP13We made changes to your return because we believe there’s a miscalculation. You’re not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.
CP13AWe made changes to your return because we found an error involving your Earned Income Credit. You’re not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.
CP14We sent you this notice because you owe money on unpaid taxes.
CP14IYou owe taxes and penalties because you didn’t take out the minimum amount you had to from your traditional individual retirement arrangement (IRA). Or, you put into a tax-sheltered account more than you can legally.
CP16We sent you this notice to tell you about changes we made to your return that affect your refund. We made these changes because we believe there was a miscalculation. Our records show you owe other tax debts and we applied all or part of your refund to them.
CP19We have increased the amount of tax you owe because we believe you incorrectly claimed one or more deductions or credits.
CP20We believe you incorrectly claimed one or more deductions or credits. As a result, your refund is less than you expected.
CP21AWe made the change(s) you requested to your tax return for the tax year specified on the notice. You owe money on your taxes as a result of the change(s).
CP21BWe made the change(s) you requested to your tax return for the tax year specified on the notice. You should receive your refund within 2-3 weeks of your notice.
CP21CWe made the change(s) you requested to your tax return for the tax year specified on the notice. You’re not due a refund nor do you owe any additional amount. Your account balance for this tax form and tax year is zero.
CP21EAs a result of your recent audit, we made changes to your tax return for the tax year specified on the notice. You owe money on your taxes as a result of these changes.
CP21IWe made changes to your tax return for the tax year specified on the notice for Individual Retirement Arrangement (IRA) taxes. You owe money on your taxes as a result of these changes.
CP22AWe made the change(s) you requested to your tax return for the tax year specified on the notice. You owe money on your taxes as a result of the change(s).
CP22EAs a result of your recent audit, we made changes to your tax return for the tax year specified on the notice. You owe money on your taxes as a result of these changes.
CP22IWe made changes to your tax return for the tax year specified on the notice for Individual Retirement Arrangement (IRA) taxes. You owe money on your taxes as a result of these changes.
CP23We made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You have a balance due because of these changes.
CP24We made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You have a potential overpayment credit because of these changes.
CP24EWe made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You have a potential overpayment credit because of these changes.
CP25We made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You’re not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.
CP27We’ve sent you this notice because our records indicate you may be eligible for the Earned Income Credit (EIC), but didn’t claim it on your tax return.
CP30We charged you a penalty for not pre-paying enough of your tax either by having taxes withheld from your income, or by making timely estimated tax payments.
CP30AWe reduced or removed the penalty for underpayment of estimated tax reported on your tax return.
CP32We sent you a replacement refund check.
CP32ACall us to request your refund check.
CP39We used a refund from your spouse or former spouse to pay your past due tax debt. You may still owe money.
CP42The amount of your refund has changed because we used it to pay your spouse’s past due tax debt.
CP45We were unable to apply your overpayment to your estimated tax as you requested.
CP49We sent you this notice to tell you we used all or part of your refund to pay a tax debt.
CP51AWe computed the tax on your Form 1040, 1040A or 1040EZ. You owe taxes.
CP51BWe computed the tax on your Form 1040, 1040A or 1040EZ. You owe taxes.
CP51CWe computed the tax on your Form 1040, 1040A or 1040EZ. You owe taxes.
CP53We can’t provide your refund through direct deposit, so we’re sending you a refund check by mail.
CP59We sent you this notice because we have no record that you filed your prior personal tax return or returns.
CP60We removed a payment erroneously applied to your account.
CP62We applied a payment to your account.
CP63We are holding your refund because you have not filed one or more tax returns and we believe you will owe tax.
CP71You received this notice to remind you of the amount you owe in tax, penalty and interest.
CP71AYou received this notice to remind you of the amount you owe in tax, penalty and interest.
CP71CYou received this notice to remind you of the amount you owe in tax, penalty and interest.
CP71DYou received this notice to remind you of the amount you owe in tax, penalty and interest.
CP88We are holding your refund because you have not filed one or more tax returns and we believe you will owe tax.
CP90CWe levied you for unpaid taxes. You have the right to a Collection Due Process hearing.
CP120You need to send us documentation of your tax-exempt status.
CP130Your tax return filing requirements may have changed: You may no longer need to pay the Alternative Minimum Tax.
CP152We have received your return.
CP153We can’t provide you with your refund through a direct deposit, so we’re sending you a refund check/credit payment by mail.
CP166We were unable to process your monthly payment because there were insufficient funds in your bank account.
CP178Your tax return filing requirements may have changed: You may no longer owe excise tax.
CP180/CP181We sent you this notice because your tax return is missing a schedule or form.
CP231Your refund or credit payment was returned to us and we need you to update your current address.
CP259We’ve sent you this notice because our records indicate you didn’t file the required business tax return identified in the notice.
CP297CWe levied you for unpaid taxes. You have the right to a Collection Due Process hearing.
CP501You have a balance due (money you owe the IRS) on one of your tax accounts.
CP521This notice is to remind you that you have an installment agreement payment due. Please send your payment immediately.
CP523This notice informs you of our intent to terminate your installment agreement and seize (levy) your assets. You have defaulted on your agreement.
CP565We gave you an Individual Taxpayer Identification Number (ITIN).
CP566We need more information to process your application for an Individual Taxpayer Identification Number (ITIN). You may have sent us an incomplete form. You may have sent us the wrong documents.
CP2005We accepted the information you sent us. We’re not going to change your tax return. We’ve closed our review of it.
CP2006We received your information. We’ll look at it and let you know what we’re going to do.
CP2057You need to file an amended return. We’ve received information not reported on your tax return.
CP2501You need to contact us. We’ve received information not reported on your tax return.

Understanding Box 9B on Form 1099-R

When a taxpayer retires, they will start to receive money from their retirement plan (e.g. pension or annuity).  As the payments are made to you, each payment will consist of two parts.  One portion will be the amount (if any) that you contributed to the plan and the second portion will be the piece the employer contributed (or the earnings).

You are not required to enter the total employee contributions or designated Roth contributions that are reported in box 9b. However, failing to do so may cause you to pay more tax than you should.

What does an amount in box 9b mean?

The amount shown is the total amount of after-tax contributions you paid to your retirement plan while working.  It’s used to determine the after-tax contribution amount shown in Box 5.  If you want to know what each field on Form 1099-R means, then check out this informative illustration.

Do you pay tax on this amount?

If you made post-tax contributions to your retirement account, you don’t pay income taxes on the portion of the distributions you receive based upon the amount for which you were already taxed.  This is referred to as your “basis” in  the plan.  If the taxpayer didn’t make any after-tax contributions to the retirement plan (which is often the case), then the “basis” is zero, and each distribution from the retirement plan is 100% taxable.

So what do you do with this amount?

If you are using software, then you want  to include it somewhere to indicate your basis.  If you are doing your taxes manually, then there is an IRS Simplified Method Worksheet that determines the amount of basis that is included in each periodic payment.  This worksheet will help you  determine how much basis the taxpayer should spread out over the payments they receive.  If you are using a professional, they should  know what to do!