This week, we are continuing our discussion about the process to reduce your IRS tax debt, and the information that must be reported to the Internal Revenue Service (“IRS”). In addition to income and expenditures that must be reported, the IRS also requires that taxpayers wishing to reduce their debt report certain assets that they own. Taxpayers should err on the side of caution and report any and all assets held in their ownership, whether these assets are foreign or domestic. Here is a quick list of assets that must be reported. Like with our previous discussion, we will split our discussion between personal and business assets.
Taxpayers wishing to reduce their IRS debt must report any cash they own. This includes any amount held in a bank account, whether that account is a checking account, savings account, money market account or an online-only account. Of course, cash held in outside of an account or secured places like a safe or safety deposit box must also be reported.
Typically, when one is reporting income tax to the IRS, stocks and bonds must only be reported once that taxpayer has made a sale (known as realized gains). However, for purposes of tax reduction, stocks and bonds not yet sold must be reported (known as unrealized gains). A taxpayer wishing to reduce their IRS debt must report the fair market value of stocks and bonds they own.
As is the case with stocks and bonds, the fair market value or retirement accounts must be reported (these include 401k and IRA accounts) even though payout of these accounts has yet to occur. The value must be reported, even if the account is still growing. Simply report the current value, though. Do not include expected gains or growth.
The value of any car that the taxpayer currently owns or any lease must be reported. If the taxpayer is reporting a lease, the current value less any loan amount is reported.
If the taxpayer owns a traditional life insurance policy, they must report the current cash value of that policy. If the cash value of the property has yet to accrue, then none needs to be reported. Also, if the taxpayer has borrowed against the cash value, then they can offset the cash value by the borrowed amount. Keep in mind, term life insurance policies do not have a cash value, so taxpayers need not worry about reporting the value of a term policy as there is none.
When reporting any real estate the taxpayer owns, certain information must be included. Among this is the county and country where the property is located, whom the title is in, whether the property is a primary residence of the taxpayer, and, if held with a mortgage, the current value less any loan balance. The fair market value of the properties would be listed and reduced by any mortgages or other similar encumbrances on the property.
Any miscellaneous assets must also be reported. This includes collectibles (e.g., automobiles, sports cards, coin, etc.), artwork, and jewelry. The taxpayer must report the fair market value of these items.
Regarding business assets, many of personal asset discussion would apply such as cash that is held by a business must be reported. However, it is important to note assets akin to business that must also be included. Among these are the equipment owned by the business used for producing goods or office equipment such as industrial copy machines. Another asset is any amounts of accounts receivable. Finally, any notes receivable issued by the business. This could be loans issued owners of the business.
As with all of our blogs, if you have any questions regarding the information we have provided, please contact our office. We would be happy to help answer any questions you may have.