The True Tax Consultation

In the tax industry there are many so called "Tax Experts" who claim to be experts in "Tax Relief" or "IRS Tax Relief" , however they usually are no more an expert than a used car salesman is an expert mechanic. The reality of the situation is that most Tax Consultants do not have any type of technical training much less any legal credentials to represent tax payers before the IRS or any taxing authority. So the question is what is a considered a true tax consultation?
My definition of what is a true tax consultation does not necessicarily have to begin with someone who is legally licisenced to represent taxpayers but it should begin with someone who is thoroughy versed in tax code or at least a specific area of tax code, such as the IRS Collections Division.
A true tax consultation for someone seeking "IRS Tax Relief" should start with a firm that thoroughly trains their consultants. How do you know if a consultant is thoroughly trained? If a consultant is thoroughly trained they should be able to educate a client on how they arrived at their current situation, what caused this situation, what needs to be done immediately to alleviate their current situation and what needs to be done to avoid this situation in the future. They should also be able to accurately and honestly tell the client what can realisticly be done to resolve their situation, meaning they should know what the IRS' parameters are regarding all aspects of tax resolution. This involves knowing the law in regards to "Offers In Compromise", "Installment Agreements", "Currently Not Collectable Status", "Amended Returns", "Penalty Abatements" and numerous other possible resolution options.
If a consultant cannot or does not explain to a client what the qualifing parameters involved with each resolution option is and whether or not the client is within the qualifing parameters then they are not providing the client a true tax consultation. What they would be providing at that point is a dream, just to collect fees from you. Remember if it sounds to good to be true then it more than likley is.

Leave that 401k alone...or else!

If I could pinpoint one common problem or misunderstanding that I am often questioned about by my clients and friends, it would be there 401k account. Most seem to understand what the basic nature of what a 401k is, which is a retirement account that typically invest a percentage of there income into stocks or mutual funds. What most of my clients and friends often don't understand is 1) that your contributions to the account are pre-tax and 2) that if you withdraw from the account there are taxing consequences.
First, lets explain the the pretax contributions. When you set up your 401k, you normally are asked what percentage of each paycheck you would like to have automaticlly deducted and contributed to your 401k. This deduction is done prior to taxes being withheld from your paycheck. So your contributions lower your taxable income. For example if your gross paycheck is $2000.00 and you chose to have 10% of that contributed to your 401k account, then every paycheck would have $200 automaticlly deducted and deposited into the 401k. This would leave you with a gross paycheck of $1800.00 and you would be only taxed on the $1800. Your federal income tax on the $1800 would likely be something like $414 and your FICA tax would be another $138, leaving you with a net paycheck or take home pay of $1248. If you had not contributed to the 401k then your net paycheck would have been $1387. So the difference is $139. Meaning you were able to save $200 for retirement that really only cost you $139 in take home pay.
The obvious purpose of the 401k is to save for your retirement. This is why the IRS will penalize you for any withdrawls from the account if you are not 59.5 years old. This penalty is 10% of the withdrawl. The other consequence of any withdrawls prior to being 59.5 is that you now have to include the withdrawls as income on your tax return and since it was contributed to the 401k account prior to being taxed, it will now become taxable, often putting you into a higher tax bracket and resulting in a 1040 tax return with a balance due. Since most people do not understand these consequences they also do not prepare for them and now have a tax liability or rather a tax debt that they cannot pay.
The IRS has limited options for resolving this situation. You can either requested an installment agreement to repay the debt over time or depending on your financial situation you may be able to be placed in a financial hardship know as Currently Not Collectable. If you chose to ignore the sitatution then eventually the IRS will enforce collection of the liability through a "wage levy" a "bank levy" or both. They IRS will also likely file a tax lien against your social security number.
The moral of this is to leave your 401k account alone and avoid any withdrawls from the account. If you find yourself in a situation where you need to access the funds, you should try to borrow against the account rather than withdrawl from the account. Perferrably, you should simply leave the account alone until after you are 59.5, also prior to making any loans or withdraws from your 401k accounts please consult your tax adviser, or a "Tax Expert".