We've come across Laruen Holter's Bustle article on the new tax bill (particularly focused on the elminated personal exemptions) and wanted to make sure our readers and clients had a chance to see it too. Follow the link below to read about how the tax bill might affect you and your family.
Why Your Business Needs a Tax Accountant
Making mistakes on your tax returns or regularly going over your budget is detrimental to you and your business, regardless of the quality of your product or the service(s) you provide. Employing the use of a CPA is a smart move for your business, as they will provide expertise as well as save you time, allowing you to focus all your energy on continuing to build a successful business.
Accountants do more than simply fixing problems or errors. They also look extensively at your finances and create a projection of the upcoming year to keep your business prosperous. Here's a brief summary of what an accountant can do for you:
When you’re running your own company, your top priority is to generate more business. Your time is limited to begin with, and all of your energy needs to go toward achieving your business goals. Hiring a tax accountant will free up precious time as they will take over the paperwork and stay on top of your spending and budget.
A tax accountant will help you run your business as efficiently as possible. They can assistwith taking money out of your company efficiently, paying yourself through dividends, and identifying what you can and cannot claim through company expenses, among other things.
A tax accountant will stay on top of deadlines and paperwork, as well as help you to avoid mistakes on your tax returns, which will help you to avoid penalties.
An accountant can help you pinpoint the right time to expand because they’re closely watching your finances. Going with your intuition or personal business expertise may not always be enough, in fact, poor financial planning is the second leading cause for the decline of a company. Spare yourself the extra risk and have someone with the experience and time keep an eye on your finances and help you make those business-growing decisions.
Throughout the year, a tax accountant can help you identify potential deductions and keep track of items like depreciation, out of pocket expenses, and home office space – all things you may forget about amid running a successful business. There are many deductions you might be unaware of which means you may not be taking full advantage of the deductions available to you. A tax professional is well acquainted with all of the options that might be within your reach and will ensure you get the appropriate deductions – as well as ensure you’re not claiming deductions you shouldn’t be.
With year-round counsel, you can avoid the dreaded audit. A tax accountant can help you identify practices that might be a red flag, resulting in those annoying audits. As mentioned above, your accountant will ensure that you’re getting the appropriate deductions, which includes avoiding the ones you don’t have a right to. This is a good thing, as the IRS has many triggers that send up red flags when going over your returns, such as claims that look suspicious. An accountant will help you to be sure you have all proper documentation supporting your claims as well as help you prepare for future claims.
Ultimately a tax accountant will keep on top of everything for you, saving you valuable time and keeping you away from easy mistakes such as errors on tax returns, missing deadlines, overspending on the budget, etc.
When you’re working for yourself, your time is limited and precious. Your top priority needs to be your business and ensuring its success. Getting caught up in deadlines and paperwork only detracts from the task at hand. A tax accountant is truly in your best interest.
Help pull in investors
Regardless of how close you are to bringing on any investors, it’s wise to have an accountant on your team as early into your business as you can. Having an accountant right from the get-go means that he or she has watched your finances the whole way through, right from the start, which then means they will have figures, growth projections, and hard data for you to present to future investors. An accountant will be incomparable ally to have in your back pocket.
Hiring an accountant can be costly, but an accountant for your business is a worthwhile investment for the upkeep and overall well-being and success of your company and its finances. Even when you’re strapped for cash, an accountant is nearly always the way to go. The benefit and advantage of having your finances in order and your taxes accurately completed nearly always outweighs the cost.
For an idea on the costs, a CPA typically ranges from $150-$400 per hour while a bookkeeper ranges from $30-$50 per hour. Clearly the CPA is the bigger investment, but with it comes more versatility and a wider breadth and depth of knowledge. A bookkeeper is a good option for a project by project basis, such as strictly around tax time. Your time is valuable too, so a wise decision is to let an accountant free up the time you’d spend daily on balance sheets, taxes, and payroll, allowing you to reallocate it to focusing on your products and services and overall growth and expansion of your business.
IRS Revenue Officers
Most of the time when you have to deal with the IRS, you’re in contact with an IRS agent. However, it is an IRS Revenue Officer you’ll speak with if you’ve been delinquent with your income tax bill.
The difference between these two extends beyond their titles. Their jobs are quite different as well.
An IRS agent is employed by the IRS to audit tax payers, while an IRS Revenue Officer collects money.
One way to spot an IRS Revenue Officer is by their badge, which is simply a plastic card. If someone ever shows up with a gold badge, they’re an agent from the IRS Criminal Investigation Division (CID), which is a totally separate entity from the IRS Revenue Officer. If a gold badge is shown to you, it’s in your best interest to contact a tax attorney.
A IRS Revenue Officer cannot arrest you; all they can really do is make a referral to the CID, laying out their evidence for why they think you should be placed under arrest. This usually only happens in the case of fraud though, and not many of these cases are even accepted by the CID.
An IRS Revenue Office has been trained specifically to take collection action, and this means they’ve got the power to get in touch with taxpayers by any means necessary, which includes visiting the taxpayers home or work, or making calls on the phone. They might also issue written notices telling the taxpayer to appear at hearings or meetings. They are duty-bound to make first contact in person, however. This is why, if your tax delinquency is severe enough, you may find yourself face to face with an officer at your home or business. When one shows up, they will likely hand you a form called Form 433-B, which is a collection information statement and is what the officer will use to discern how much money to collect from you every month. You can negotiate with the IRS – which many people don’t realize. They will take whatever they can get from you, as they know they can’t tap a dry source. However, you have to earnestly prove to them that you honestly can’t afford to pay the full amount. When filling out the form, any deduction you can exploit should be documented, and you shouldn't try to keep your assets a secret because the IRS is aware that people do this and if you’re caught, it’ll bode badly for you. That’s why we recommend that when this form is given to you, you seek counsel in completing it. You have every right to receive help filling out, and you should take your time with it. It does not need to be completed on the spot. The officer may try to convince you into an installment agreement or another collection method that you’re not able to pay for. It’s important to remember that no matter how nice they may seem their job is ultimately to represent the government’s best interests, not yours.
All this in mind, most taxpayers don’t speak with an IRS Revenue Officer. These collectors are usually only called when a case involves some extreme tax negligence. Examples of this situation would be where a taxpayer fails to pay back taxes for a long period of time or if the person has a substantially large amount of tax debt owed to the IRS. If this isn’t happening, you’ll likely be dealing with an IRS agent instead. Around a decade ago, there were more active IRS Revenue Officer in the field compared to today and this is because the IRS Field Collection’s budget was drastically cut. This means, again, if your case was handed over to a IRS Revenue Officer , your tax delinquency was quite serious.
An IRS Revenue Officer cannot request to audit or examine your finances as they do not have the authority. They also do not carry a gun or need a background in finance for the job.
Because an IRS Revenue Officer is allowed to issue levies, seize accounts receivable, and initiate seizure of valuable property, among other things, we advise that when faced with one, you contact a tax attorney who specializes in resolving IRS back tax liability (Robert Lewin LTD would be an excellent place to start). It’s on optional, but very helpful step you can take. An experienced tax attorney can evaluate your financial position, at no cost, and discern what next steps you should take concerning your back tax liability. We also recommend getting in touch with the IRS and verify with them that all required returns have been filed. You should also get an updated balance due (with penalties and interest). If you have NOT filed some tax returns, square those away ASAP and pay the balance due. Any resulting refund COULD be enough to pay your liability completely.
It can shake you up to hear from and IRS Revenue Officer, but it's important to remember not to beat yourself up too much over it, as you're not the first or last person to deal with this.
Don’t be like Michael Scott. “When the son of the deposed king of Nigeria emails you directly, asking for help, you help! His father ran the freaking country! Ok?”
Everyone gets targeted by scams in some way, and if you haven’t yet, you will. Scammers can be very crafty, utilizing fear-tactics in order to force their victims to act without thinking things through. So how can we tell when something is a scam versus the real deal?
Fear is often the medium used to get people to divulge confidential information or put themselves in a compromising position. Fear gets people to act quickly, and often without thinking things through. That being said, when it comes to a tax scam, here are several things the IRS will NEVER do:
Threaten to send a law enforcement agency to arrest you
Command you to pay taxes without giving you the chance to petiton or question the amount they claim you owe
Solicit payment via email or phone
Order you to use specific payment methods for your taxes (like a prepaid debit card)
Ask you to resend your tax return to them or verify information on your tax return by email or phone
Some tactics scammers uses to convince you they are legitimate:
Email scammers may fake IRS letterheads and use malware-infected documents or web links. Scammers are extremely crafty these days – with so much technology, several avenues open up for these people to exploit and possibly leave you vulnerable. They have the ability to change the way their caller ID appears to you in order to trick you into thinking the IRS or another government agency is trying to contact you. Email scams can be particularly tricky – whether it’s specifically a tax scam – or something else. Oftentimes, email scammers may forge IRS letterheads or they’ll infect attachments and links with malware designed to access your information and hack you. It’s crucial that you stay alert and cautious, especially when it comes to your personal information. A sneaky way in which scammers and hackers try to gain access to your information is by posing as someone you know (or, as previously mentioned, the IRS/government) to trick you into opening malware infected attachments and links. Be sure to never open any attachments or links unless you’re positive that they’re authentic. In some instances, scammers may already have confidential information about you, such as your social security number, or your financial account numbers, which have obviously been accessed illegally. You can be sure that if they have this information, they will use it against you to appear more authentic.
Sometimes scammers also direct you to web addresses that look official, but aren’t. The official website for the IRS is www.IRS.gov . If you are unsure whether you’ve been contacted by a genuine IRS representative, you can call our office at (847) 982-1040 and we can help you suss it out.
If you’ve got public, readily accessible information about yourself (such as your address and your name), scammers will exploit these in an attempt to seem more credible and authentic. In some cases, scammers have even gained access to confidential information on you, like your social security number or financial account numbers, (these have been obtained unlawfully). Scammers may even coerce you into divulging confidential information (via phone or email).
Fear tactics may include threats of arrest, warnings of deportation, urgent callback requests, license revocation or any other number of upsetting threats. Sometimes, to really sell the scam, the scammer will go so far as to instruct their victims to head to the nearest bank or business where the victim is told to mail a receipt of the payment.
When it comes to the internet or to anything regarding giving out your money, it’s important to be alert and think things through – no matter how scary, threatening or realistic something may be. You can (and often should) double check.
Always ask questions. Never assume something is legitimate until you can prove that it is
In an effort to make sure every reader finds the following information digestible, I’ve done my best to over simplify this blog. If you’re a seasoned veteran, you’re in for a breezy ride.
So to start, let’s define what a lien is:
A lien is a right to maintain custody of a property belonging to another person until the debt owed by that person is squared away. A federal tax lien is the government’s legal claim against your property when you avoid or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets.
The IRS will place a lien against your property only after it has sent you a bill and you have not paid it. Getting slapped with one of these is taxing (ha ha) to be sure, but understanding the process will make it easier to plot a course and hopefully ease some of that stress.
The IRS will file a public document called a Notice of Federal Tax Lien. This will be placed on your credit record and will make applying for credit more challenging. The tax lien will affect all of your property until the tax debt is settled. It also applies to business assets, including all your accounts receivable. This gives the IRS first dibs to any money that spawns from the sale of property.
So how can we avoid a Federal Tax Lien?
Well, you definitely don’t want to ignore the IRS, it won’t make it go away and it will only complicate matters for you. The longer you avoid it, the harder it’ll be to care of. If you find you’re not able to pay the entire tax amount immediately, you have the option of setting up a payment plan. There's an Online Payment Agreement Application that you may be able to use to set up your payment plan, but this depends on how much you owe.
Getting rid of the darn thing:
Usually when trying to get rid of a tax lien, bankruptcy isn't an option. The IRS may keep an lien in place long after bankruptcy, should the tax debt remain unsettled.
Simply put, the best, most definitive way to rid yourself of the dreaded tax lien is by paying the tax you owe. However, obviously we all know this isn’t necessarily always possible, so there are alternative routes you can take to lift it – but these tactics are not without-fail guaranteed.
In some cases, you can apply for a Certificate of Discharge. This eliminates the tax lien from a particular property. If you qualify under specific Internal Revenue Code provisions, a "discharge" of property from a Federal tax lien may be approved.
"Subordination" won't get rid of the Federal tax lien, but it will enable the other creditors to get their money first. Subordination places junior creditors in front of the IRS regarding a particular property and is relatively common. When inevitable, the IRS does this to secure the other creditor's approval for sale, like in the case of a mortgage on a property in which a bank also holds a lien. A subordination allows the bank to get paid first, while the IRS takes the remainder.
You can remove the public Notice of Federal Tax Lien through “withdrawal,” which makes sure the IRS won’t be a contender against other creditors for your property. If you enter into a Direct Debit Installment, you may be eligible for a withdrawal. It’s important to note, however, that you will still have to pay your tax debt, a withdrawal does not purge it.
This is a intricate process and it may be best to include the help of an independent tax attorney, like us here at Robert Lewin LTD, to ensure everything is in your best interests. It doesn't have to be stressful on your own.
Accounts Receivable: Money owed to a company by its debtors.
Audit: When the IRS examines and verifies your return or any other transaction with tax consequences
Estimated Tax: What the tax payer expects to owe in taxes over the course of a year, usually paid in quarterly vouchers
Exemption: A reduction of income that would otherwise be taxed
Schedules: IRS forms that are used to report various kinds of income, deductions, and credits
Capital Gain: An increase in the value of a capital asset (investment or real estate) that gives higher worth than the price at which it was purchased. It may be classified as short term or long term and must be claimed on an income tax return
Annuity: An annual payment, such as from a retirement plan.
Deduction: An amount subtracted from your taxable income for certain expenses.
Deficiency: The amount of taxes owed after paying too little, assessed during an audit.
Dividend: A stock distribution given to stockholders in the form of cash, property, services, stock rights, or more stock.
Extension: A tax extension, obtained by filing or e-filing Form 4868, will delay your filing deadline by 3 months. Note that this extends your time to file, but not your time to pay, and interest and penalties may apply to any late tax payments.
Foreclosure: The legal process by which a lender takes possession of a home when the homeowner has defaulted on the mortgage.
Garnish Wages: when a court issues an order requiring your employer to withhold a certain amount of your paycheck and send it directly to the person or institution to whom you owe money, until your debt is paid off
Gross Income: The total amount of income you must report on your tax return. Your income before applying adjustments, exemptions, credits, and deductions.
Levy: To impose a tax. To tax someone, or to put a tax on something.
Mortgage: A loan made to purchase property, generally real estate. The borrower pledges the property to the lender as collateral to guarantee repayment of the loan.
Adjusted Gross Income (AGI): Your gross income reduced by adjustments to income, before exemptions and deductions are applied.
Adjustment to Income: Also called an above-the-line deduction. A type of deduction that you may take without having to itemize.
Annuity: An annual payment, such as from a retirement plan.
Do your best to file your tax returns on time or you may not get the refunds owed to you. The IRS will refund the overpayment on individual tax returns only for the past three years, but they may collect back taxes from you for a total of ten years.
A True Story
A woman had not filed her taxes for five years. When she found out that she was due money from the IRS for the first two tax years that she neglected to file, she also found out that she was not able to collect those refunds. For those first two years, she was due over $8,000. In preparing the returns for the subsequent three years, she found that she owed money to the IRS. Because of the three-year rule, she could not get credit for the $8,000 overpayment against what she owed to the government.
The IRS has the power to seize assets in order to satisfy back taxes that it is owed by private citizens. If you delay dealing with your issues, you could be at risk for losing much more than your tax bill.
A doctor owed a little over $160,000 in back taxes to the government. His main asset, his business, was worth about $300,000. If he had avoided dealing with the situation, the IRS could legally have taken his business and sold it at a discount just to cover the amount of the tax bill. This means the doctor could have lost the entire value of the business to pay the debt, and an extra $200,000. Instead, he wisely chose to work with the IRS on a payment plan of $2,000 per month until the debt is paid. He kept all the assets of his business and he is able to continue earning income in his own practice. If he had done nothing, he would have lost everything.