Navigating the complex world of the IRS National Standards for Allowable Living Expenses can be a daunting task for your clients. As a CPA, tax professional, or enrolled agent, your expertise is essential in guiding them through this often-confusing terrain. This comprehensive article will explore the ins and outs of the IRS National Standards for Allowable Living Expenses, providing you with the knowledge and tools necessary to help your clients accurately assess their expenses and align with the IRS’s guidelines. By understanding these critical standards, you’ll be well-equipped to offer invaluable assistance to your clients in their tax resolution journey.
Dealing with the IRS is never easy, especially when it comes to determining allowable living expenses. We’ve never known anyone who jumps for joy at the opportunity to deal with the IRS, but some interactions are worse than others and THIS is one of them.
If allowable living expenses come into question, dealings can be really unpleasant for your clients AND you as a tax professional. Bottom line – many people have little or no ability pay what they owe the IRS to begin with. Their problems are compounded by the fact that they have real expenses that the agency is unlikely to consider in its financial analysis.
Forking over a wad of cash to the IRS leaves some clients between a rock and a hard place, doesn’t it? Oh, but the IRS has a heart.
If taxpayers can’t pay what they owe in one lump sum, the IRS says, “No problem!” Then they attach hefty penalties and interest and say, “Here, just pay what you owe in monthly installments.” Great! That’s a win-win solution, right?
Uh, wrong.
Why? Because of the additional fees attached, clients who can’t pull out their checkbooks and pay end up coughing up many times more than what they owed in the first place, and installments are often higher than some can afford. Most people are also making mortgage payments or car payments – or both – on top of their grocery and utility bills. It adds up fast.
So what’s the IRS’s definition of allowable living expenses? In other words, what, exactly, does the IRS deem as necessary? Well, it’s actually pretty bare bones. The agency describes this as “expenses that are necessary to provide for a taxpayer’s (and his or her family’s) health and welfare and/or production of income.”
Under the agency’s 2017 standards for a two-person household, the IRS reveals it allows $612 for food, $65 for housekeeping supplies, $138 for apparel and services, $63 for personal care products and services and $254 for miscellaneous expenses. That amounts to a whopping total of $1,132.
That’s probably a lot less than most clients would guess. But hey, we’re talkin’ the IRS here!
Get a jump on next tax season now. The countdown has already begun. Educate your clients about allowable living expenses and remind them to gather up all their receipts and paperwork before they make their appointment to file their taxes!
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