Owe Back Taxes

Why You’re Getting Audited

True confession:  every time a client calls or emails me with those faithful words “I’m being audited!” I cringe a little.  Not because I’m afraid of the IRS, or even because I worry about the return they filed, but simply because. 

It’s like seeing a police car behind you suddenly turn on their lights, even though you know you’ve done nothing wrong!

Yet every year, about 1 in 250 Americans get that audit letter.  Why?  Well, the IRS has never published a specific list of infractions that cause an audit, but they have given us hints over the years about some of the things that cause red flags to be waved about your return. 

Let’s look at a few…

·       The biggest one, by far, is failing to report ALL taxable income.  Many times, of course, this is a simple mistake on the part of the taxpayer – maybe they forgot a bonus, or some small dividend, or even a part-time job or contract they only had for a month or two.  Nevertheless, the tax law is simple:  ALL income is taxable and ALL income is reported to the IRS both from the taxpayer and the entity that pays the taxpayer.  Somewhere in the bowels of the IRS, those two numbers are matched up and when they don’t match, guess what?  It either flags the return for an audit or the IRS simply sends you a bill for the untaxed income. 

·       Making “too much” is also another flag for an audit.  The IRS is really in a can’t-win situation here, because if they audited all returns equally, they would get a huge backlash for “picking on” the poor AND, honestly, the amount they’d likely recover from a low-income audit isn’t really worth the time to investigate.  That’s not saying that poor folks can cheat on their taxes, it’s simply a fact of life that lower-income returns aren’t on the radar as individuals.  The IRS is likely to look for common threads among certain groups of flagged returns, though – do they all come from the same preparer or company?  Once your income is over $200,000, though, the numbers of audits per capita rise significantly. 

·       Schedule C write offs – especially for big-ticket items like travel and meals – always seems to invite scrutiny.  ANYONE who owns a business and claims Schedule C deductions knows that there is a lot of “gold” in those deductions, and the IRS does, too.  If those deductions fall outside of a certain percentage, expect your return to be flagged and potentially, be audited. 

Those represent some of the most obvious ones, but there are countless other ways your return gets flagged and the return auditing process begins.  The good news – or at least, what should be good news – is that any CPA worthy of the name is going to assist you if they are the ones who signed the return you filed. 

In other words – you shouldn’t have to go into an audit alone. 

If you’ve been notified the IRS is going to be auditing you, the first thing to remember is this:  don’t panic.  Reach out to your preparer, let them know what’s going on, and then?  Begin to gather the documentation you’ll need to verify your return.  The good news is you should already have that.

…And while I never want to second-guess another tax professional, if you’ve got questions, me and the team are always here to help!

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, so we can schedule a confidential consultation to explain options to permanently resolve your tax problem Make an appointment here!  Or, call Toll-free 1-855-254-1892.

There’s Money Everywhere!

 

Now that Tax Season is almost (kinda) over, I wanted to report on some of the neatest things I noted as we prepared returns for clients this year. Honestly, the way sharp folks found to make money in the unprecedented world of social distancing and a pandemic is nothing short of amazing, and I wanted to share them, especially if you’ve been a little stuck regarding income, career, and full-time work.

Even if you never taught school a day in your life, I’ve known many people using tutoring to make ends meet. It might be daycare-level teaching, or college level, but the simple fact is this: students need help because the schools aren’t giving it to them. I’ve seen rates from $15/hour all the way to $80/hour this last year, depending on many factors, but there’s more work than ever as the institution of school has fundamentally changed. The best part? Technology allows you to do this virtually, so there is little added expense for commuting. 

I was surprised at how many people did so well selling other items. Now, some did this by hauling off unwanted items, some did it by cleaning their own house and attic. Either way, it’s put money in their hands and made things better for the people who were tidying up their homes and yards. Maybe you’re looking at this in terms of scrap metal, or junk removal, or simply cleaning out other people’s houses and garages. The end result is delighted people. Period. 

Another unique – and surprising – thing we noticed this year was home rentals. Second, homes which might usually have been AirBNB rentals were being rented for longer periods and often directly by the owner with no middleman handling the exchange. It seems weird, but I think the real reason is simple: whole families were home and/or working remotely, so they opted to take a longer vacation in places they considered safer.

Of all the fun gigs I realized, though, my favorite is still dog walking. I’ve mentioned this before, but I once met a woman who earned over $100,000 annually walking other people’s pets. With so much emphasis placed on social distancing and keeping those at risk out of harm’s way, folks who are looking to get exercise and get some extra money can turn a tidy profit with Fido in tow. 

These are some easy ways to create more income, so put on your thinking cap and get busy!

We’ll chat soon!

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, so we can schedule a confidential consultation to explain options to permanently resolve your tax problem Make an appointment here!  Or, call Toll-free 1-855-254-1892.

Let’s Get You Scheduled

From a professional point of view, how often should you speak with your tax specialist or CPA?  Surprisingly enough, the answer is usually not often enough.  While there is usually no set timeframe between visits or discussions and even emails, there are a few points to consider that will help you to determine the right frequency for you and your businesses situation.

Ideally, you want a strong relationship with your Accountant.  Don’t get us wrong, the team and I don’t need to be invited for BBQs on the weekend, but the important thing is you have to trust my judgement and the judgement of my team.  I can tell you through the printed page how much we look out for your interests and your specific situations, but the reality is – you have to feel it.  Knowing that we are at the top of our game and the advice we are giving you is tailored to your personal situation is peace of mind in itself.  For this kind of client, which really is the ideal client of any Accounting Firm, you would be looking at meeting with us on at least a quarterly basis.

Ultimately though, it is personal preference, but we think that you should feel comfortable speaking to us quite often about your business.  The reason?  Simple – we make difficult decisions simpler for you.

Contact with us also doesn’t always need to be face-to-face.  A quick phone call or even email, just to touch base, perhaps ask our advice as you need it can result in completely different outcomes for your business.

If you’re a client that prefers to have a relationship with your Accountant that is purely transactional, because you feel you know your business inside and out, it’s making money and is profitable, that’s ok too.  However, this type of client is taking on a lot of responsibility and liability themselves, including the extra knowledge involved in keeping up-to-date with changes within the industry.

It can be a good idea to mine the knowledge that I’ve built in the tax and business field over the years, too – not just in terms of numbers, but of experience from our dealings with other clients.  You may want to ask us advice on how to grow, or how other businesses in a similar situation faced their challenges and what have they done.  While every CPA has a responsibility to comply with Privacy Laws in relations to the specifics of their client’s transactions, I can share with you the basics such as: a business in a similar situation started using a specific QuickBooks Add-on to help with their debt recovery and has seen amazing results.

Accountants can often put you in touch with the right person to help you at the right bank or even law firm.  Getting connected to the right person can make your transactions move so much more seamlessly, after all would you really want to use a lawyer who specializes in family law when you want a trademark applied for?

The only wrong frequency to see me and the team?  Once a year at tax-time.  If you feel that seeing your Accountant is just a pain and costly exercise that you complete because it’s required each year, I hate to say it, but you really won’t be getting much value out of your meetings as you could be.

Go ahead, give us a call and let’s see what we can do…

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, so we can schedule a confidential consultation to explain options to permanently resolve your tax problem Make an appointment here!  Or, call Toll-free 1-855-254-1892.

Your Home Is Not a Bank!

This tax season, I’ve been shocked at the number of clients who have resorted to suing the equity in their homes to stay afloat. 

I get it – COVID has impacted all of us in many ways, but if you have – or are considering - the various options for using the equity in your home as a way to pay down some other debts, KEEP READING!

Now, you can generally do this in two ways:  the Home Equity Line Of Credit (HELOC) or a home equity loan.   

Now, personally, I’ve always been a fan of HELOCs instead of a second mortgage or a home equity loan, because the HELOC is available to you when you need it, but since you’re effectively creating a line of credit based on the equity you have in your home, you don’t have to spend anything. 

Read that line again…

You don’t have to spend anything.  

With a second mortgage or a home equity loan, you give up some control of the ownership of your home (the way I see it) for a chunk of cash. 

Most of us can’t handle a chunk of cash – that’s the truth, no matter how much you want to protest – and homeowners and their money are soon parted, leaving them with more debt and the goals they had originally set unfulfilled. 

On the other hand, with the HELOC, you don’t have to use the money, you simply have the money available.   You CAN pay off higher interest credit cards with it (essentially swapping the debt to a lower potential interest rate) and that can, in the long term, save you a lot of money. 

But you have to do it properly. 

And you have to have some discipline about it. 

But for the disciplined homeowner who can manage their finances and follow a plan, a HELOC can be a powerful tool to help sort out debt. 

It is NOT a cash machine. 

In fact, to me, one of the biggest benefits of the HELOC is there are a few extra steps to using that equity, meaning you’ll think twice about frivolously using those resources, which, I hate to say, will ultimately save you money and keep you out of debt. 

Now, one last thing before we close for the week – if using the equity in your home seems like a good idea, then talk about it with me and the team AND discuss it with at least two lenders.  Talk with us to make sure it’s a good financial move and then shop around for the best rates. 

Sound good?  Great.  

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, so we can schedule a confidential consultation to explain options to permanently resolve your tax problem Make an appointment here!  Or, call Toll-free 1-855-254-1892.

2021 Unemployment Exclusion

If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

PUSH!

I have to be honest – no matter how long I’ve been involved in the world of accounting, I never thought I’d see as many bad habits among such smart people. 

No, I’m not talking about personal habits, or even business decorum, I’m talking about bad advice.

How to handle money.

How to think about building a business.

How to grow your company.

When to take this action, or make that move.

It’s really a shame that so many people selectively listen to advice and then cherry-pick the things they want to do.

Case in point:  A prospective client many years ago refused to follow my advice on hiring a bookkeeper due to the costs (which, it’s worth pointing out, was less than $500 a month).  His company was, at that time, making nearly $5 million annually, and as you can imagine, his tax preparation fees were astronomical.  He decided to simply do it all himself because he’d save several thousand dollars each year, and guess what?

When Under Armor offered to buy his sports clothing business, his inexperience and lack of professional assistance not only resulted in his business being incredibly undervalued, the resultant mess of his taxes and how he ran both the company and his personal income resulted in a nearly seven figure tax bill out of the blue. 

You see, what happened was simple:  he took advice from folks who had never been in his position before. 

His friends who worked for other people.  His family who had never run a large company.  His sphere of influence and his own relationship with success actually made things harder for him.

This year, I want you to not only admit you might not have the right people in your corner, but I want you to push through all your old ways of thinking about your business and look at what the next level of success really means. 

Is that moving to a C-corp?  An S-corp? 

Hiring professionals? 

Building systems and processes to take certain items off your plate? 

In short, I want you to REFUSE to accept the status quo and instead, make yourself and your business so successful you can’t help but be overwhelmed and expand in every direction – personally, professionally, and even spiritually.

Why? 

Well, two reasons:

First, the middle class is a death sentence.  You’ll never have enough and even a million dollars isn’t really a status symbol like it once was. 

Second, there’s no such thing as “Enough.”  Any living thing that stops growing has begun dying, and while you could say the same thing about a business, what I mean right here is YOU.  If you’re not challenging yourself and your company, you’re really shrinking. 

You’re losing an edge you can’t afford to lose and a market share you MUST be seizing. 

If you’re worried about where the growth can come from, or how to deal with it, the answer is simple – find the people and businesses who are growing and mimic their actions and ideas. 

You can do this … and you HAVE to.

My team and I are here for you, so if this idea is a little scary (and it should be), then reach out and let’s discuss how growth and expansion doesn’t mean higher taxes. 

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, so we can schedule a confidential consultation to explain options to permanently resolve your tax problem Make an appointment here!  Or, call Toll-free 1-855-254-1892.