Non Taxable Income: A Short List to Ease Your Worries

Report your income…Normally any money you receive during the year has to be reported on your income tax filings. This includes paychecks, interest on accounts, and any kind of withdrawal from accounts such as 401k or pension. However there is a fairly significant list of income sources that do not have to be reported as income on your tax return, and therefore are considered non taxable.

Why is this money not taxed? In general they’re not taxed because they don’t actually increase your personal income, nor can the money be used for personal use in order for the money to remain non taxable. And of course the IRS has restrictions.

The following sources of income are considered non-taxable:

• Life Insurance Proceeds
• Inheritance: This has the stipulation that if you inherit property and sell that property then you do have to report the property sale as income.
• Child Support Payments do not have to be reported as income by the recipient, but they don’t count as deductions for the payer.
• Scholarships, grants, and any other kind of financial aid for education; but it must be used for school or school related expenses.
• Worker’s Compensation payments, these also can not be levied if you owe a tax debt. In fact any kind of health or accident benefits is exempt from taxes.
• Benefits received from the Department of Veteran’s Affairs.
• Death benefits received by a service member’s family.

The tip of the iceberg…Of course this is only a sampling on non taxable sources of income, there are many more available at www.irs.gov .

Now you have the smoking gun…Use it!

Your Best Friend’s Debt: They Can Bring You Down with Them

This is another article devoted to your friends and family for this tax season. Enjoy...

A good friend… If you have a friend in debt to the IRS and the IRS is threatening to levy or seize his/ her assets; your good friend may sell, transfer, or even give their assets to you hoping the IRS can’t get them. Not only is your friend wrong because the IRS can still seize the assets, but you can also be made liable for the tax debt.

Always getting you into trouble…Here’s how you can get into trouble: If your friend knows about the tax debt and still transfers the assets or property to you then you can be liable and the government can file suit against you!

You versus the IRS…The IRS can file a civil suit against you in a U.S. district court. When they do this the IRS is imposing the tax liability on you and you become responsible for the tax debt. You’ll receive a certified letter called a Notice of Liability Transfer. If you don’t file a petition then the debt becomes yours and IRS collection agents will come knocking on your door ready you levy your property.

Most of the time, when the IRS takes you to civil court they will try to transfer the assets back to your good friend, the original debtor. The IRS will first of all try to collect the assets or property and sell it.

To the rescue…If, however the asset or property was legally signed over to you the IRS can get you out of your problem. Better yet, they can force the debt back on your old buddy. If your friend knew about the debt and transferred the assets to you anyway it can be considered a Fraudulent Transfer. The IRS will still pay you a visit to collect your friend’s property. Any legal paperwork that verified the transfer is set aside and the debt is reinstated as your friends.

Beware friends bearing gifts…Of course if you do nothing or your friend skips town then you’re up the creek, and the boat is leaking. The debt becomes yours and the IRS will start imposing collection actions against you. So the next time a friend tells you they want to sell their stuff to you cheap they may have a tax debt and are trying to pass it along to you.

Now you have the smoking gun…Use it!

IRS Tax Debt and Your Family: Just Because You’re Related Doesn’t Mean You can Trust Them

This was going to be a Valentine's post, but I got caught up with other work.

Your so called loved ones…During my life as an IRS-Hitman and during my time helping those with tax debt I’ve made an observation. And that observation is this: you can’t trust family, friends, or spouses when it comes to money. All too often someone is in debt because they loaned family members money and were never paid back. Or they co-signed on a loan and got stuck with the debt. So how can your family and loved ones stick you with an IRS debt?

You can depend on dependents…to get you into debt! Too often I’ve seen people try to get child tax credit for their girlfriend’s, sister’s, brother’s, or cousin’s kids only to have it come back and bite them. The problem with child tax credit, especially if you’re not the birth parent or legal guardian, is that you have to prove the child was in your care for the tax year in question.

If your wonderful family member who stuck you with their kid decides they’re going to claim their child, or if they refuse to provide you with information like a birth certificate to prove that you’re related you will get stuck with the tax debt.

For better or worse, kind of…Friends and spouses can’t be trusted anymore than your own children. I once worked a case when I was an IRS-Hitman where a man who owned a business with his best friend owed a substantial tax debt. And how did he get into debt? His best friend and partner embezzled money from their company and took off with the debtor’s wife. He got stuck with the debt and had to pay the wife in the divorce because he couldn’t afford a decent lawyer.

Brotherly love…Another story involves two brothers. One of the brothers was in tax debt and the other who wasn’t. The one who was in debt gave his brother his boat so the IRS couldn’t seize it. Not only can the IRS seize the boat, but because the brother in debt signed the boat over, his brother who didn’t have a debt didn’t include the boat as gift income, got audited, and now owes the IRS as well.

This shouldn’t convince you to turn away from family and friends who need help. It should only serve as a warning that when it comes to money and debt, even those closest to you can prove untrustworthy.

Now you have the smoking gun…Use it!

A Reminder

Today is February 15th. You only have two months left to file your 2008 income taxes.

Tax Debt for Retired Americans: 5 Common Questions

As the IRS-Hitman I receive frequent e-mails requesting tax help. There are millions of Americans who are retired and living day to day on Social Security. While some have retirement funds or pensions that are helping them most are barely living. An IRS debt is a serious problem for these American, and if you’re one of them it can seem like everyone has forgotten about you. The IRS-Hitman hasn’t and here is some advice to help you with an IRS debt.

Are there any tax deductions that I can get because I’m a senior citizen and on social security?

Absolutely, here are two that you can get.

Any amount you put into a retirement fund account such as an IRA can be claimed as deduction.

You can also get a Credit for the Elderly or Disabled. To get this credit you must be 65 years of age or older, and your gross income can not be over a certain amount. For information on the Credit for the Elderly or Disabled click here.

If I owe the IRS can they levy or garnish my Social Security or any accounts I have like my pension?

Unfortunately yes the IRS can. They can actually garnish your Social Security check by up to 15%. Also any accounts or investments you have are treated just as any other account be the IRS which means they can seize them and withdraw the money, leaving you with little or nothing in an account it took you a lifetime to earn.

If I pass away and there’s still an IRS debt, does my family still have to take care of it?

IRS debts work similar to regular debts you owe to creditors. At the time of your death it is the responsibility of the executor of your estate to distribute the funds to both the IRS and your creditors. If you don’t have an estate setup to handle your affairs at the time of your death there isn’t much the IRS can do to collect from your family.

However if you Will anything to your family members such as a house, if there are any back taxes on the property they will have to be responsible for those since by taking the property they assume any debts that come with it.

I’m on a fixed income and can’t afford to pay anything on my IRS debt. Is there anything that I can do?

When you are truly destitute and you can only afford the most basic expenses, and you have no assets there isn’t much the IRS can do to collect from you because there simply isn’t anything to collect. When you’re in such a desperate state you can be put into a Currently non Collectible status by the IRS. That means the IRS will suspend any collection activities against you, unless your financial situation improves.

Can the IRS take my Life Insurance Money?

Not while you’re still alive. However once you have passed away that money will go to your estate which will have to distribute it to the IRS, just as your estate executor would have to use the money to pay off other creditors.

Again, even though your family doesn’t have to be responsible for your debt you can still leave them with fallout from it. For example if there’s a lien on your property and you will it to your children; your children would have to pay off the debt to get the lien released so that they could sell the property.

5 Questions you should ask a tax pro before hiring them

Can you guarantee that you will settle my tax debt for pennies on the dollar?

Settling a tax debt for pennies on the dollar, or an Offer in Compromise, is a long and difficult process. In fact only 2% of people who apply actually get accepted. So if you go to a tax professional and they claim they can guarantee you’ll get an Offer in Compromise with the IRS they’re not being completely honest with you.

How will you get my debt settled with the IRS?

A good tax professional will be able to walk you through the process step by step, and should be able to explain it to you in a way that you can understand. If they start giving you a mouthful of technical jargon, but don’t actually answer your question you should be wary of their practices.

What’s your standing with the Better Business Bureau?

Research the company with the Better Business Bureau first. When you ask them what their standing is and they give you a different answer than the BBB ask them why their information is so different. Chances are the actual status is worse than what they’ll tell you.

When you say my case will be handled by a tax professional, what do you mean?

There are only three professionals that the IRS will negotiate with on a tax debt. They are tax attorneys, CPAs, and licensed enrolled agents. If the company you go to doesn’t immediately tell you one of those three will be working on your case they may be scamming you.

How much will this cost me?

The actual cost of services from a tax professional depends on the company, the amount of debt, and the solution you’re hiring them for. But unless you owe a very large debt, a good rule of thumb is that you shouldn’t have to pay more than $5,000 for a tax professional’s service. Even if the price seems fair, remember to ask the other questions first. Because getting ripped off is still getting ripped off no matter how much you pay.

Of course there are legitimate tax professional services out there. And they can and will help you with your tax debt. The key is finding the one that doesn’t try to sell you on the most appealing solution; but to find the one that listens to you and offers you the most realistic solution.

Now you have the smoking gun…Use it!

IRS-Hitman weighs in on the Economic Stimulus Package

For those of you who haven’t heard of this yet there is currently a bill being passed through congress to promote economic stimulus by giving every tax paying American a little extra money to spend and “jump start” the economy. This little package is costing the tax payer $150 billion. And how much extra money will each of us get to use to “jump start” the economy.

The extra money you get, for the average middle class American is $600.00, $1200.00 if you’re married, and an extra $100.00 for each kid you have.

Normally I try to stay out of directly commenting on any political issue, as I don’t talk politics; I just offer advice on solving your tax debt. But I’ve got to throw my 2 cents in on this.

First of all spending $150 billion so that every tax payer can get $600.00 each is not “economic stimulus.”

There’s that saying, “Give a man a fish he’ll eat for a day. Teach a man to fish and he’ll eat for a lifetime.”

Of course this subject came up in one of the 2008 presidential primary debates and one of the candidates made a point that has stuck with me. He recommended that $150 billion should be used to repair America’s infrastructure. And that’s a valid point. Can you imagine how many jobs that a construction project of that magnitude that would generate. Not to mention you could get private investors to put up capital so that the taxpayer’s aren’t covering the whole bill.

Granted that won’t give every person an extra $600.00 which frankly wouldn’t do much for the average American, and have little effect on “stimulating” the economy. But putting the money towards infrastructure improvements, or school improvements, or anything else the government can do to stimulate the economy for real. And creating jobs and encouraging private investment would give the economy a real boost.

And since I’m giving my opinion on the subject, why don’t you weigh in with yours.

More Question and More Answers with the IRS-Hitman about Your Tax Problems

I’m always receiving questions from you about your tax issues. Sometimes I feel like these are questions that everyone should know the answers to. So once again I’ve delved into my e-mail and pulled out some questions to answer.

Can the IRS seize my car or truck?

Yes they can. The IRS can seize anything you have of value to pay off the debt you owe them. But if you can prove to the IRS that your vehicle is necessary to get to and from work, or if the vehicle is for your business the IRS may let you keep it. However if you have more than one vehicle, the IRS will seize all but the one.

I’ve already agreed to give my tax refund check to a collection agency I owe money to. I also have a debt to the IRS. Can the IRS still take my refund?

Of course they can. The thing to remember about the IRS is that they don’t care about any other debts that you have. When you owe them they consider themselves top priority. So even though you had promised to pay this collection agency with your tax refund, you will never even see the refund because the IRS will take it first.

The IRS is already garnishing my wages. Can they take my tax refund too?

Yes, as long as you have a debt the IRS can take any tax refund you would have been entitled to, no exceptions.

The IRS is asking me for evidence to prove that my own child lived with me to claim her for a child tax credit. Can they do that?

If there is any doubt as to whether you took care of your child during the tax year then yes the IRS can request proof. You will need to provide them with school records, doctor records, and any other documentation that shows your child lived under your roof for at least 6 months of the tax year.

If the IRS levies your bank account, how long before they lift the levy?

Once the IRS levies your bank account they can freeze the money in your account for 21 days. Of course once the IRS releases the levy they’ve taken the money they need out of your account. So even though you have access to your bank account after the 21 days, there’s nothing left in it.

What can you do if the IRS comes to your door?

Just as with any law enforcement agency IRS agents can’t enter your home without your permission. However IRS agents can very easily get a Writ of Entry from a Federal Judge giving them the ability to walk into your house and seize your assets. How easy is it for the IRS to get a writ of entry? They go to the Federal Judge, ask for one, and he gives it to them…just like that.

Now you have the smoking gun…Use it!

IRS Debt Collectors: Do’s and Don’ts for Protecting Your Assets

Face the music…You’ve tried everything to deal with your debt to the IRS. You’ve defaulted on a payment plan. You were turned down for an Offer in Compromise. The IRS is geared up to lean on you hard. And since you can’t pay them with money, they’re lined up outside your door to take your stuff. What can you do?

Efforts in futility…During my years with the IRS I oversaw numerous collection actions. And people will do some insane things to keep their stuff from getting seized. But here’s a secret I want to share with you…the IRS will find anything and everything you have. Make no mistake, no matter how clever you think you are you’re dealing with the most powerful and experienced collection agency in the Country. There is no trick they haven’t seen.

Stop and think…But since you’re at this stage of debt collection, and you’re stuffing your valuables under the floorboards I want to try to help you out, so you’ll at least have a bed to sleep in. But first I want to share some of the things people have done to try and avoid the IRS.

One guy had more junk than you could imagine. He was the classic over spender living way above his means. I mean he had motorcycles, jet skies…the works. But here’s what he was doing. He was giving friends of his the money and they were buying these luxury items under their names. He was sure we couldn’t touch his toys. He was wrong.

Another guy actually buried his stuff in the back yard. We get suspicious when we visit your home once, and then the next time the TV, stereo, etc… are missing.

Some people have actually destroyed their stuff rather than let us seize them.

In case you haven’t figured it out these are all examples of what not to do.

Is there no end? So what are you supposed to do? I know you don’t want to hear that you should cooperate and just let IRS collectors load up your belongings into trucks. But that’s pretty much what you should do. The agents are already at your home, they know what you have, and they’re going to get it. And they have pretty wide discretion on how they conduct the seizure. Being cooperative can get you some leniency, but throwing a tantrum will have them loading your kitchen sink.

Back to basics…That’s not all you can do. If you can prove to the IRS that any of your assets are necessary for your basic living or for your job then they can’t seize those items, although there are limits to what you can claim as “necessary”.

Now you have the smoking gun…Use it!

Fighting IRS Debt Collectors: 6 Common Questions about Wage Levies

How much can the IRS take out of my paycheck?

The IRS does what is called an income and lifestyle analysis. They figure out how much your “basic” living expenses are and then take the rest of you gross income. This breaks down to the IRS being able to levy 50-75% of your paycheck.

Can my boss refuse to levy my check?

He/ she can, but your boss is probably aware of what will happen if he/ she won’t comply. The IRS expects their money, and if your boss decides to stand up to them on your behalf, they take the money from your boss.

How can I get a wage levy removed?

Enter into an arrangement to handle the debt with the IRS. There are several possible programs you can enter into to handle your IRS debt, but if you’re not willing to do anything then the wage levy stays.

Will the IRS leave me enough money to live on?

That depends on how much you feel like you need to “live on”. The IRS will leave you with enough to cover the most basic expenses: food, clothes, utilities, and that’s about all. The IRS does not consider credit card payments to be basic, so if you’re in credit card debt the IRS wage levy can make your life very hard.

If the IRS has already levied my wages do they still take out the regular taxes on my paycheck?

Yes they do. In fact your wage levy comes out first, and then your regular taxes are taken out of what’s left over. So you’re already getting levied for 50% of your gross pay, and then the IRS takes out your regular taxes, so your net pay will only be about 30% of what is should be.

I’m an independent contractor and don’t get a regular wage. Is there something like a wage levy that they can hit me with?

Absolutely, they can levy any money you make from a job. In addition the IRS can go to your clients and demand payment directly from them before you get paid; which could damage your business’ reputation.

IRS Tax Debt: Free Money isn’t Free!

I receive letters and e-mails from people asking about their tax debt issues. I received this e-mail regarding money from a lawsuit not being taxed, and now the person is in debt to the IRS because of some bad advice. In the e-mail they’re asking if they can settle the debt for a lower amount.

Dear Sir:

Do you defend people and help to get the amount lowered which is owed to the IRS? How do you help? I am interested in someone working with the IRS on our behalf to get the amount we owe down? Is this what you do? Ours was a mistake our tax guy made on money we received from a lawsuit. He said that this money didn't have to be taxed like income. Long story short he couldn't have been more wrong. Now the IRS is wanting much more than we can pay. Sound familiar?

The same old song and dance…Their situation is pretty familiar. I’ve lost count of how many people think that when they receive a lump sum of money, or if they withdraw money from an investment account that taxes have already been taken out. This misconception has forced too many people into serious tax debt.
 

In a nutshell…In brief you have to pay taxes on any and all lump sum payments or investment withdrawals. In fact you should figure that you will have to pay the IRS around 30% of the total amount. In addition the lump sum or investment counts as income for that year, so you’ll likely be bumped into a higher tax bracket and may even owe additional funds on your taxes for that year. This also applies to lottery or gambling winnings as well.

Can you settle for less…The person from the letter also asked about lowering their total debt owed. Since they received a lump sum payment from a lawsuit they’re not very good candidates for a settlement known as Offer in Compromise.

What can be done? This person is in a pretty tight situation. There are two options available: They can enter into a monthly payment plan with the IRS. They will need to pay off the debt in installments over time, and the interest and penalties will continue to add on to the debt.

Since they received bad tax advice they can try to file an amended return. If they can prove that they didn’t know taxes weren’t taken out then they would be able to re-file the return. Because the income from the lawsuit will put them into a higher tax bracket they will probably still owe money to the IRS. However it will be much less than the taxes owed on the lawsuit money and the money due from the tax return.

If you can take anything away from this it is that you have to pay taxes on any money you receive.

Now they have the smoking gun…and so do you.

The Income Tax Burden: The IRS-Hitman Takes Aim at Helping the Middle Class part 2

IRS-Hitman here and I’m tackling some of the current issues regarding tax reform put forth by the Presidential Candidates. I keep hearing how the candidates are going to put forth tax reform that will help relieve the tax burden on the middle class. While the current tax code certainly doesn’t favor the middle class; do any of these proposals actually provide any relief?

There is a growing movement towards what is called a Fair Tax. The basics of the Fair Tax are that it doesn’t tax income, but replaces the current income tax system with a system that relies on sales tax.

Governor Huckabee is a major proponent of the Fair Tax and has been promoting it during his Presidential campaign. He states that the Fair Tax would reward hard work and savings.

Here’s how it would work…since the fair tax no longer taxes income that would mean that your gross pay would also be your take home pay. You wouldn’t have higher taxes taken out for overtime hours worked or bonuses earned. In theory this would give the average American more buying power.

But how much is this new sales tax going to be? Governor Huckabee claims it would be 23% which is close to what we pay in income tax now. Opponents of the fair tax state that the rate would be 30%.

What about small businesses? Wouldn’t an increased sales tax cause them problems? Well they would have to pay the sales tax to the government every quarter, much like they do with payroll taxes now. But all the other taxes that small businesses have to pay, such as 1099 and 941 payroll taxes would be a thing of the past. Also businesses won’t have to keep up with the minutia of deductions and credits.

Another advantage to small businesses according to Fair Tax advocates is that business to business purchases for the production of goods or services wouldn’t be taxed. In theory this would allow small businesses to have more operating capital.

What about the very wealthy? Do they really buy enough in luxury goods that they would be paying their due taxes? Also under the Fair Tax money from capital gains, dividends and other forms of unearned income wouldn’t be taxed.

Under the Fair tax plan corporate taxes would disappear altogether. The idea is that corporate taxes are bad for consumers; as the corporations pass their tax burden resulting in higher prices and lower wages for workers. Fair tax advocates assume that the corporations would reinvest the extra money into creating new jobs for Americans, and lowering the cost of goods and services.

There are some points the IRS-Hitman would like to make regarding these statements.

State income tax wouldn’t be abolished, so you would still have to pay that. In addition States can still have individual sales tax, so you would have to pay a federal sales tax plus a State sales tax.

Next is the assumption that if corporations are taxed less they’ll pass on the savings to the American people. That’s a pretty naïve point of view. It’s just as likely that the major corporations will continue as they already have been, just now their shareholders are making more that they’re not being taxed on.

So taking the dark side of corporations into account the majority of the tax burden again falls onto the middle class.

The IRS-Hitman will continue to explore income tax reform from the candidates and try to provide you the middle class with the smoking gun you need!

Questions and Answers with the IRS-Hitman about Your Tax Problems

I’ve received many questions regarding IRS tax debt from people just like you. Some of these subjects I’ve already written about, some of them I haven’t. I thought it would be a good opportunity to take the time and answer some of the questions I’ve received, and give everyone the knowledge to fight the IRS.

I can’t pay my tax debt. I have no assets, and I live under the poverty level. What can the IRS do to me?

If you are truly unable to pay the IRS and you have nothing available for them to seize then they can’t collect on the debt. You can be put into a status called Currently Non Collectible in this situation. The IRS can revoke that status if your financial situation ever improves.

Can I get a home loan with a tax lien on my credit?

Probably not since a tax lien is a serious black mark on your credit. In fact you’re not going to be able to get a loan for anything. Unfortunately the only way to get a tax lien removed from your credit is to pay off your full debt.

How much of my wages can the IRS garnish?

The IRS determines how much they’re going to garnish from your wages based on your gross income minus basic living expenses. Using this formula the IRS can take as much as 50-75% of your paycheck.

Can I write off the tuition to my child’s private school on my taxes?

No, the IRS does not consider private school tuition to be a necessary expense. It falls into the IRS’s luxury category making it impossible to claim.

Can the IRS come after me and my assets if I marry someone with a tax debt?

Yes they can. When you marry someone with a tax debt you also marry their tax debt. That means the IRS can garnish your wages, and seize your bank accounts just as they can your spouse.

Is there any way to stop the IRS from taking my tax return refund?

If you have an IRS debt then there isn’t any way to stop them from applying your refund to your debt. Remember, until that debt is paid everything you have the IRS can take to apply to your debt.

If two people claim the same child as a tax credit, for example the child’s grandparent and parent. Who gets the child tax credit?

Child tax credit goes in the order of the child’s relationship to whoever is claiming them. So with the above example the parent would have the first crack at the credit over the grandparent. Now if the grandparent can prove that they had taken care of the child for the tax year in question then they would be eligible for the credit; but the burden of proof rests on them.

Can you get a rapid refund if you owe the IRS?

No, if you owe the IRS then any refund you’re entitled to goes to your debt. What’s even worse about the rapid refund is that a rapid refund is a loan from the tax prep company that gave it to you. So if you tried to get a rapid refund while you owe the IRS, not only will you still owe the IRS, but now you have to also pay back the rapid refund loan.

I look forward to receiving more questions from the average American with tax problems.

Now you have the smoking gun…Use it!

Tax Problem Help: How to Give Yourself a Fighting Chance

I've posted several articles on specific solutions to an IRS tax debt. But I know that you don't always have time to search through my list of articles to find the right one. So I'm providing a list of solutions to IRS debt issues with a short description of each option. I hope you find this useful.

The IRS wants my money! What can I do? When you’re in debt to the IRS is seems like there’s no hope for help. The debt seems impossible to ever pay off and you can feel the breath of the IRS’s hounds. I’m breaking the silence of an IRS-Hitman by telling you about information that can give you peace of mind.

What kind of miracles are there? There are several programs that the IRS and private companies offer to give you help with your tax problems, but they all have requirements that need to be met.

The Installment Agreement: This is a monthly payment plan that you setup with the IRS to pay off your debt. The catch is that the IRS determines what the payment amount will be per month and that can be more than you are able to afford.

The Offer in Compromise: When you hear a late night TV commercial talk about settling your tax debt for pennies on the dollar, this is what they’re talking about. This program sounds almost too good to be true. It is real, but it is also the most difficult to get. Only 2% of applicants for an Offer even get approved.

Currently Non Collectible: If you’re completely broke, or you’re on a fixed income that covers only the most basic living expenses you can qualify for this. Since you have no money or assets the IRS can go after; they temporarily suspend collection activities. The IRS does check up on you every year and if your financial situation changes, they will renew their collection efforts.

Innocent Spouse: Normally if you marry someone you also marry their tax debt. However there are exceptions to this situation and you can get out of a debt created by your ex-spouse. The tax debt has to be your ex’s, you can’t have filed jointly. You have to have not known about the debt. The debt can also be erased if there was abuse. If any of the criteria are met your tax debt can be completely erased.

Penalty Abatement: When you get in debt to the IRS interest and penalties start adding on to your debt immediately. In fact your debt will increase by about 25% each year. If you’ve suffered a catastrophic event in your life you may qualify to have the penalties removed from your debt. This can reduce your debt by up to 30%.

A light at the end of the Tunnel. Being in debt to the IRS makes you feel overwhelmed and alone, but now you know there’s a possibility for hope.

Now you have the smoking gun…Use it!

The Income Tax Burden: The IRS-Hitman Takes Aim at Helping the Middle Class part 1

Does the American middle class shoulder the majority of the tax burden? Well they certainly shoulder the majority of IRS tax debt. The majority of people that I took collection actions against were in the $30,000-$100,000 income range. The most common segment of the middle class that was targeted: small business owners.

This isn’t to say that Americans living close to or below the poverty level don’t have tax debt. Also the wealthy aren’t exempt from racking up massive tax debts…and let me tell you when we got to seize the assets of the super wealthy it was like Christmas.

I’ve discussed aspects of the Fair Tax championed by Governor Huckabee in my article, “The Hitman takes Aim at the Fair Tax”.

Right now however I want to discuss a tax plan from the other side of the aisle, and that’s the tax plan proposed by Senator Obama.

Senator Obama has stated that he intends to provide an 80 billion dollar tax cut to the middle class and poor. But how does he intend to do this, and would it work?

Senator Obama has proposed stiffer income taxes for the wealthiest Americans, but candidates have promised that before without any visible change. But let’s look at his plan anyway.

One of the major obstacles in increasing income tax for the wealthiest Americans is the income tax cap. Basically the maximum amount of income that can be taxed in $92,500 and any income over that isn’t taxed. Senator Obama has proposed lifting that tax cap.

He has also stated that he will increase tax rates on unearned income such as; capital gains, dividends, and profits of hedge funds. Currently those are taxed about 15%. Senator Obama proposes an increase to 20-28%.

He also plans to give a $500 tax credit per person that would offset the first $8,100 of payroll taxes.

He claims he would crack down on off-shore tax havens for multinational corporations.

But would all of this aid the middle class? Well the Hitman has some questions that are rattling around my head.

First of all if corporations are more heavily taxed, especially the capital gains and dividends of their share holders; there may layoffs of workers causing undue hardship to the middle class.

The elimination of the tax cap certainly would cause the rich to pay more, but it also can hurt the small business person who may have a gross income of $100,000-$200,000. While this does seem like a large amount of income, small businesses have to put most of that money back into operating costs and increased taxes on their income could seriously hurt their business.

With the strong possibilities of layoffs for the average American, and an increased burden for the small business the tax plan that looks and sounds very good could widen the gap between the very rich and the very poor.

As the race for president heats up the IRS-Hitman will continue to tackle tax proposals from both sides of the political aisle.