Withdrawing from your retirement account can really mess with your taxes, especially if you withdraw early. It’s important to make sure that any income you receive, you pay taxes on. The IRS will always look to see if you’re not only claiming all the income you make but that you’re also paying the appropriate taxes on the income. Here’s how not paying taxes on their income got two of our clients into big tax trouble.
Table of Contents
Case #1:
Early withdrawal from your retirement account can get you into tax trouble easier than you think. That’s what happened with our client. He had moved closer to his parents to help take care of them and ended up not being able to find a new job with the move. To pay his rent and living expenses, our client withdrew early from his retirement but didn’t pay the taxes he owed on the income. His wife was also diagnosed with ovarian cancer and could no longer work, so their retirement payouts were their only source of income. The IRS sent an Intent to Levy letter to our client and he knew it was time to get help. We took a look at our client’s finances to see what type of resolution he could afford and would benefit him the best. We decided a Partial Payment Installment Agreement (PPIA) would be the best route. After some tough negotiation, the IRS accepted our PPIA offer. We helped the client set everything up and move forward from his tax problem. Two years later the IRS reviewed our client’s payment plan. The IRS is allowed to review your payment plan every two years to see if your finances have changed and you can afford a higher monthly payment. Our client’s wife had passed away and he had received money for her life insurance which triggered the review. After looking at updated financials for our client, we realized despite the payout, he still was struggling financially as he was still paying off past-due bills. We took this information to the IRS and they re-instated our client’s previous payment agreement. This saved our client over $129,000!
Case #2:
The IRS will try to tax as much of your income as possible. This includes retirement payouts, stock dividends, and lawsuit winnings. Our client had won a lot of money in a lawsuit case and did not know how to properly pay the taxes on the winnings. He ended up with a large tax liability and came to us for help when the IRS threatened him with a tax lien. We first helped our client get into compliance with the IRS as he had several missing tax returns and the IRS would not let us negotiate without him being in complete compliance. We also made sure our client was making his Estimated Tax Payments so he didn’t incur more tax debt. Our team determined he was a good candidate for an Offer in Compromise as he had little income and very high expenses. We filed the OIC and waited to hear from the IRS. After 9 months, the IRS told us they needed proof of his high expenses. We were able to prove and substantiate his expenses and the IRS approved his offer, saving him over $600,000 and resolving his tax issues once and for all.
If you need help settling your tax debt with the IRS or State, call Polston Tax Today! Our team of Tax Attorneys, CPAs, Case Managers, and Tax Accountants will help you get the best resolution possible and solve your tax problems once and for all! Call 405-801-2146 or visit www.PolstonTax.com to schedule a free consultation!
Additional Readings
William is an Oklahoma native, raised in Skiatook but living most of his life in Tulsa. He graduated from Bishop Kelly High School and is currently attending The University of Oklahoma to get his degree in accounting with a minor in finance. William is also part of the Native Organization at his school. He felt...
The winter holidays are fast approaching, and employers across the country are preparing for their yearly office parties. If you’re thinking of celebrating your workplace, you might be eligible for more tax deductions than you realize. Are company holiday parties tax-deductible? The simple answer is yes, as long as they meet a specific set of...
There are many times when life throws obstacles at you, especially when you least expect it. Sometimes things happen in people’s lives that cause them to not file their tax returns on time – or even at all. This is exactly what we are here to help you with, and for our first client we...
We often get clients who come to us after attempting to deal with the IRS on their own, and things don’t turn out how they had imagined it being without having the help of a tax attorney. Case #1: In our first case, our client had gained filing compliance and fully paid off her taxes...
Case #1: Our first client was a business owner who was going through a bad divorce. She had purchased the property for her business under her personal name, and unfortunately her ex-husband had been commingling the business expenses with their personal expenses for years. This is one of the biggest red flags that the IRS...