Are you struggling to pay back taxes, IRS interest or tax penalties? The IRS has announced a new initiative to help struggling taxpayers who owe the IRS back taxes, penalties and/or interest on their tax debt. The Internal Revenue Service has effected a major expansion of it’s “Fresh-Start” program that will provide new penalty relief to the unemployed and making tax installment agreements available to more taxpayers.

The expansion calls for certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. They are also doubling the the dollar threshold for taxpayers eligible for installment agreements.

The tax penalty relief is a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

• Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year.
• Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

This tax penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

The tax installment agreement states that effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the Offers In Compromise (OIC) program to more closely reflect real-world situations.

So how do you get a fresh start from the IRS? By taking advantage of the tax penalty relief and tax installment agreements offered by the IRS.

For more on tax penalty relief, tax installment agreements, Offers In Compromise or other tax related issues, visit the IRS website.

Before you know it, federal income tax season will be here. If you were one of the millions of unfortunate Americans who lost their job in 2009, be aware it may have created new tax issues.

The Federal Stimulus Act has extended the tax benefit for those who received unemployment compensation in 2009. The first $2,400 of 2009 Unemployment Compensation is TAX-FREE. However, the unemployment benefits above the $2,400 limit will still count as taxable income.

Otther income tax issues created by unemployment have to do with severance and other payments. Severage payments from your former employer are taxable. In addition, any payments you received for accumulated vacation or sick time is also taxable. Always ensure that enough taxes are withheld from these payments to avoid a big tax bill.

Generally, withdrawals from pension plans are taxable unless they are transferred to a qualified plan (like an IRA). If you happen be under 59 1/2, an additional tax may apply to the taxable portion on your federal income tax.

If you sell stocks, bonds and investment property are not immediately taxable. However the sale of assets should be reported. If you have a gain on a sale, it may generate an income tax liability. You should review your overall tax situation and make sure you pay the required taxes to avoid any estimated tax penalty. Be aware that it may effect your federal income tax and state income tax (if applicable).

There are some deductions you can take when filing your federal income tax forms. You can deduct employment and outplacement agency fees, resume preparation, and travel expenses for job search and interviews.

If you lost your job, be advised that moving costs incurred because of a job change may be deductible. You must meet certain criteria relating to distance moved and timing of the move.

If you decide to start your own business after becoming unemployed, be aware that the IRS provides information and classes.

If you become eligible for Public Assistance or Food Stamps it is not taxable.

Your former employer must provide your W-2 by January 1, 2010, even if the business filed bankruptcy. If you haven’t received your W2 by the required time, contact your former employer. If that fails, the IRS can assist you in filing a substitute W-2.

If you lost your job in 2009, we suggest you contact IRS (www.irs.gov), your accountant or a tax attorney to maximize your tax deductions and reduce your tax liabilities.