What You Don’t Know About IRS Allowable Expenses Can Cost You Money

What You Don’t Know About IRS Allowable Expenses Can Cost You Money

Allowable living expenses/IRS National Standards


When you try to negotiate n installment agreement with the IRS, you must first learn all the vocabulary and terms of what they will be talking to you about. In fact the IRS will be telling you how much you can spend for food, clothing, rent, utilities, your car payment, etc. They allow a certain amount and they expect you to spend that amount or less and then pay all the rest of your money to the IRS in an installment agreement.

Though the Internal Revenue Service does not take the collection of taxes lightly, the IRS is prevented by law from attempting to collect assets that a person needs to survive and to live a normal life. These necessities have been dubbed allowable living expenses, and they are the expenses a person must be able to pay for regardless of their tax obligations.

The IRS defines allowable expenses to include those expenses that meet the necessary expense test. The necessary expense test asks what expenses are necessary to support a taxpayer and his family, and critically, those expenses have to be reasonable to be considered allowable. Texas Tech University School of Law, IRS Allowable Living Expenses – Other Necessary Expenses, available at http://www.law.ttu.edu/lawlibrary/library/research/bapcpa_library/irs-handbook-other-necessary-expenses.htm#

Closely related to the allowable living expenses that the IRS recognizes for tax debtors are the national standards for key categories of expenses. Five national standards have been established for five basic necessities: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. The national standards are derivations of the statistics compiled by the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey (CES). That survey endeavors to obtain information about households and families across the country and families, and looks into those families’ expenditures, income and household qualities.

The allowance for the miscellaneous category was expanded in April 2012 to include additional items. Thus, taxpayers can now use the miscellaneous allowance for various expenses including credit card payments, bank fees and charges, reading material and school supplies. Internal Revenue Service, Collection Financial Standards, available at http://www.irs.gov/Individuals/Collection-Financial-Standards.

While these allowable living expenses may seem fairly cut and dry, many of them require a deeper understanding of the tax code. The complexity of these recognized expenses and the standards they are based on increases when geographic differences in income and living expenses are taken into account. Such complexities may necessitate the advice of a tax professional like Richard Schickel, Enrolled Agent, call him at 520-448-3531.

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