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Your understanding is completely backwards. If he claimed the maximum withholding, he was having as much as possible withheld from his check. This would make sense and explain why he was owed several refunds because the IRS was sitting there holding his money from all those years.
Your friend's brother didn't get away with anything, he was an idiot for throwing away money for years.
Then I stated it wrong. He claimed 9 dependents (allowances). Apparently if you go higher than 9 that's a red flag to the IRS. He had very little withheld from his checks. The refunds he received were for past years when he claimed he was Head of Household and claimed a girlfriend's two children (since he found out SHE never filed during those years so he took the deduction).
She said he makes roughly $50k a year. Can someone give me a breakdown of the dollar amounts in penalties and interest this guy owes, and tell me what realistically can happen when the IRS catches up to him? And also, how she can be penalized for this after she marries him in about 6 months?
I'm hoping I can convince her that this is a big enough issue that she really should postpone, if not cancel, this wedding, at least until he's filed and paid in full. Although, even that wouldn't guarantee he wouldn't just not file in the future again, after they're married. What if that were to happen, also?
Any info you have would be appreciated so I can try to save my friend from financial ruin from this putz.
Relax......he has not paid.....but, from that $50,000 he has deductions he can take to reduce the amount owed.
Relax......he has not paid.....but, from that $50,000 he has deductions he can take to reduce the amount owed.
Maybe he will owe nothing.
At this point I would find a GOOD CPA.
They can figurer the tax and file the paperwork.
I really think this will be OK.
Many contractors pay no tax.......I never owe.
Fixed the typo for you
As for the topic though, let's just talk federal taxes for a moment. There are plenty of calculators out for figuring out a self-employed individual's (aka contractor) estimated taxes.
And that leads you to another $5,819 (This includes things like the standard deduction since most individuals don't itemize)
So for the current year alone, total taxes on $50k for a self employed individual would be about $12,884.
If you have nothing withheld from your pay check (as the OP described) how do you never owe? By my estimates, this guy could be looking at about $50k in taxes and that's before interest/penalties.
Then I stated it wrong. He claimed 9 dependents (allowances). Apparently if you go higher than 9 that's a red flag to the IRS. He had very little withheld from his checks. The refunds he received were for past years when he claimed he was Head of Household and claimed a girlfriend's two children (since he found out SHE never filed during those years so he took the deduction).
The government doesn't necessarily know how many dependents you claim. That's something your employer puts in their payroll systems. All the gov't sees is whatever numbers are on your W2 - which could have been adjusted based on a number of factors (health insurance, 401k plans, employer stock purchases, etc.). The W-4 form says that your employer "may have to file this with the government".
Also, by having "very little" withheld from his paychecks, that still means he had some withheld. Which means the IRS would have eventually noticed that his SSN -which his withholding was being credited towards - never had any income tax returns filed. They would have eventually noticed this and contacted him over the course of, say, 30-40 years.
Furthermore, when you say that he had "refunds" when he claimed HoH and claimed a girlfriend's 2 children since she "never filed during those years so he took the deduction", you are clearly mixing up withholding with income tax filing. You don't "claim other peoples' children' on your income tax withholding, as you yourself said that he was already claiming 9 dependents. And whether his girlfriend ever "filed" or not (whatever meaning you are using for "filing") has absolutely NO bearing on what his federal income tax withholding is that his employer withheld!
I'm calling BS on your story.
Now, what I think actually happened is that he did file his taxes and had a refund in the recent years, using his girlfriend's 2 children...but there was still a reckoning due with the IRS at some point. You can't say "oh, I intentionally failed to file my taxes for 35 years, but for the last 3 years I think I'll claim my girlfriend's 2 kids, and oh, that just happens to offset it!" (which, by the way, he would have no knowledge of doing, considering that he never filed any income tax forms for his entire life....how do you suddenly know the tax code?) Intentionally failing to file for your entire life would not carry just a few thousands of dollars in penalties and back taxes. Especially if he was never married and claimed 9 dependents when he actually had zero dependents (and if he had been married previously, then there would have been a far more complex mess involved with the ex).
He is walking on thin ice by breaking the law and putting himself and (indirectly) his fiance at risk. If the IRS believes he is intentionally evading taxes, they could press Federal Tax Evasion charges and prison, even though he has the money (?) to pay back taxes, plus interest and penalties. Look at the number of criminals in prison, who would have been thrilled to simply pay their back taxes... to avoid going to prison!
Secondly, if he has intentionally evaded taxes for 3-5-years, there are likely other areas of his life where he is operating outside the law or common standards of truth and morality. This is more than a 'clever plan to avoid paying taxes.' It is a significant character flaw that chronically allows him to imagine that he is above the law and not subject to the same standards and laws as everyone else.
Technically, having specific knowledge of criminal activity and not acting on it, can be dealt with as "conspiracy to commit ..." under the law. If she marries him in spite of this ... and they continue to evade taxes as a couple, she could well be considered complicit in his crime. At the very least, she will also lose whatever assets they may accumulate together (house, car, business, etc). --- The fact that they are both apparently talking with others about this, is beyond stupid and will likely lead to their downfall.
(Sidelight: Sitting on the money in savings only further proves that he has the money to pay taxes available ... and yet has intentionally chosen to evade them; What a dummy!).
The real problem is his thinking. Once married he isn't likely to change. That guy who flew the place into IRS head quarters a few years ago had same issue. He burned his house before doing it leaving a wife and child homeless and to deal with tax problems during their marriage.
The government doesn't necessarily know how many dependents you claim. That's something your employer puts in their payroll systems. All the gov't sees is whatever numbers are on your W2 - which could have been adjusted based on a number of factors (health insurance, 401k plans, employer stock purchases, etc.). The W-4 form says that your employer "may have to file this with the government".
Also, by having "very little" withheld from his paychecks, that still means he had some withheld. Which means the IRS would have eventually noticed that his SSN -which his withholding was being credited towards - never had any income tax returns filed. They would have eventually noticed this and contacted him over the course of, say, 30-40 years.
Furthermore, when you say that he had "refunds" when he claimed HoH and claimed a girlfriend's 2 children since she "never filed during those years so he took the deduction", you are clearly mixing up withholding with income tax filing. You don't "claim other peoples' children' on your income tax withholding, as you yourself said that he was already claiming 9 dependents. And whether his girlfriend ever "filed" or not (whatever meaning you are using for "filing") has absolutely NO bearing on what his federal income tax withholding is that his employer withheld!
I'm calling BS on your story.
Now, what I think actually happened is that he did file his taxes and had a refund in the recent years, using his girlfriend's 2 children...but there was still a reckoning due with the IRS at some point. You can't say "oh, I intentionally failed to file my taxes for 35 years, but for the last 3 years I think I'll claim my girlfriend's 2 kids, and oh, that just happens to offset it!" (which, by the way, he would have no knowledge of doing, considering that he never filed any income tax forms for his entire life....how do you suddenly know the tax code?) Intentionally failing to file for your entire life would not carry just a few thousands of dollars in penalties and back taxes. Especially if he was never married and claimed 9 dependents when he actually had zero dependents (and if he had been married previously, then there would have been a far more complex mess involved with the ex).
It's not BS -- it's true. The man was a con man from the word "go." He never filed taxes his whole life and bragged about it.
The later filing where he used girlfriend's children occurred when he wanted to draw his SS and the IRS got involved and started reconstructing back years. He got an amnesty deal with IRS and they only went back so many years -- I don't remember how many now. I'm sure he got away with a lot more by working under assumed names (he used his brother's and dad's info a lot) and different SS numbers during his life and it would look to the IRS like he didn't work a lot of years, since his own SS number never popped up in the records.
The taxpayers didn't have to support him too long though. He only drew his SS for about 3 years and died of liver cancer.
It's not BS -- it's true. The man was a con man from the word "go." He never filed taxes his whole life and bragged about it.
The later filing where he used girlfriend's children occurred when he wanted to draw his SS and the IRS got involved and started reconstructing back years. He got an amnesty deal with IRS and they only went back so many years -- I don't remember how many now. I'm sure he got away with a lot more by working under assumed names (he used his brother's and dad's info a lot) and different SS numbers during his life and it would look to the IRS like he didn't work a lot of years, since his own SS number never popped up in the records.
The taxpayers didn't have to support him too long though. He only drew his SS for about 3 years and died of liver cancer.
I don't see how he could have possibly qualified, since he would not have had 40 quarters of earnings.
Originally Posted by Red On The Noodle
He claimed 9 dependents (allowances). Apparently if you go higher than 9 that's a red flag to the IRS.
That Red Flag no longer exists. Form W-4 and Wage Withholding
Don't know when it stopped being a required report from the employer - but I remember sending the report more than a few times in the 80's.
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