Many Americans often find themselves broke and living paycheck to paycheck. But why does this happen? Is it because of lack of income/earnings? Is it due to not having certain “higher” level education or degrees like a Bachelor’s or Master’s degree from college? Is it because of certain race, gender, sexual preference or other items which can be discriminated against? Contrary to popular belief, it’s NOT just tied to how much money a person makes.
George Floyd’s Impact, Inspiration and Legacy
In early 2020, because of the tragic murder and death of George Floyd, Americans were forced to confront some realities that some would rather not. His death, on top of many Americans being out of work due to the Covid-19 Pandemic, was just enough to push us into a tailspin of social unrest. The resulting looting, rioting and “every person for themselves” mentality which followed, made one thing clear (if it was to no one other than ourselves). Through no fault of their own, many Americans are only one paycheck away from disaster.
This can be a small disaster like missing a cell phone bill, a cable bill or not having enough to go out and eat at your favorite restaurant. Or it could be a serious disaster like missing a rent or mortgage payment, getting evicted, or having to turn to a food pantry for help.
Our good friend, and client, Ashanti Johnson over at 360 Mind Body Soul here in Chicago, encouraged us to start a video series in connection with a virtual wellness summit that our CEO, Jared Rogers, participated in. Check out this specific point in Episode 10 where Jared shares a snippet of her summit and talks about George Floyd and the resulting motivation to launch the series.
In the end, seeing as we deal with money on a day-in and day-out basis, it only made sense that we should work to share the knowledge we have built up over the years with those who need it the most. So, through a culmination of all of the above, we decided that we had an obligation to do more.
Minding My Money Mondays & Tax Chit Chat
Minding My Money Mondays (#MMMM) was the YouTube series that was directly birthed following the events after Mr. Floyd’s death. In early December, we created a separate series called Tax Chit Chat (#TCC) that is for those looking specifically for just tax tips. All videos will ultimately get rolled into a much larger money management website (hopefully by early H2 of 2021), but in the interim, you can follow both series by subscribing to our YouTube channel. Each series has it’s own playlist and releases videos according to it’s prescribed schedule.
Video Episode Listing
Shown below is a listing of the episodes that were created through the date of this blog post. They go from most recent back to the very first episode. To catch an episode, simply click the title above the video thumbnail and you’ll be taken directly to it within YouTube. It’s our sincere hope that that you:
Enjoy the videos and learn from them
Spread the word on social media via the hashtags #MMMM and #TCC as we really hope to help people “Make My Money Make Sense!”
Eventually join us on the money management website once it’s launched
Send us questions and video suggestions at email@example.com as we hope to help everyone learn how to better manage their money and avoid financial disaster (although NO ONE saw a Covid-19 type event coming).
Are you wondering what happens to the tax debt of a loved one after their death? Unfortunately, any outstanding amount owed isn’t “automatically” wiped clean from the record when a taxpayer passes away. In this post we’ll discuss the general process and give you some tips on how to navigate some of the difficult steps one may encounter.
The role of the executor of the estate. When a person dies, someone may apply to the court requesting that they be allowed to settle the estate. This person could be an heir or the executor of the estate, and is referred to as the estate administrator. Once they have officially been appointed by the probate court, Letters Testamentary are issued to authorize them to act on behalf of the deceased. The estate administrator is responsible for collecting all of the deceased’s assets such as cash, bank accounts, investment accounts, personal property and titles to real estate. They then will ensure that all creditors are paid and then distribute the remaining assets to the heirs.
For example, if you are the estate administrator when your father or mother passes away, you can’t simply distribute their assets to the people named in the will immediately. First, you need to pay off any debts your parent owed at the time they died. If that parent owed taxes to the IRS, they will be included in the debts that must be paid.
Income generated before and after date of death. Sometimes, loved ones may be confused as to what must be included on which tax return. Here, we hope to add some clarity. Income earned up through the date of passing is included on the taxpayers final Form 1040. Any income generated after the day of death is earned by the deceased’s estate.
Filing of tax returns. The estate administrator is the person who is responsible for ensuring that all income tax returns for the deceased have been filed. This includes the final income tax return for the year of death. In this post on our sister site, we discuss how to file a deceased persons tax return.
To find out whether the deceased filed all income tax returns before his death, the estate administrator will have to look through the deceased’s personal records. They can also request information from the IRS to not only check return status, but get missing data (i.e. W2s, 1099s, 1098s, etc) needed to file returns. Check this page on the IRS’ website to learn more and request data.
If the estate earns money that is taxable, either from interest, dividends or rental income, these taxes are paid from the estate. According to the IRS, an estate administrator must file an income tax return for an estate if its assets generate more than $600 in income per year. This is done via IRS Form 1041.
IRS taxes owed at date of death. After you review the deceased’s personal papers and correspondence or you file any outstanding income tax returns, you may discover that your loved one still owes taxes to the IRS. A public records search may reveal that the IRS has already filed a Notice of Federal Tax Lien against the deceased’s home, vacation property, car or other property. The tax lien is official notice that the deceased owes back taxes. The outstanding amount will be deducted from the proceeds of their remaining assets to pay their taxes.
Do relatives have to settle unpaid taxes with personal funds? When a decedent’s assets are insufficient to cover his/her federal income and gift tax liabilities, relatives are generally not responsible for the remaining balances. However, there are some exceptions to this. There are payment obligations for the following individuals when tackling a decedent’s debt:
Anyone who co-signed for a loan with the decedent,
Anyone who was a joint account holder with the decedent,
Spouses in the community property states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Community property from a marriage can be put toward debt obligations, but spouses aren’t responsible for debts that predate the marriage.
Residents of states where law requires a surviving spouse to pay off some of the debts—namely health care expenses, and
Anyone who shares in any debt of the decedent
Additionally, an executor could be held personally accountable for the tax bill if:
The executor distributes assets to heirs and beneficiaries before paying the taxes,
The executor pays off other debts of the estate before paying the tax liabilities, or
The executor is aware of the insufficient funds and inability to pay the taxes and spends the assets otherwise.
Maximizing your tax deductions as a real estate broker or agent is not solely about finding things to deduct. While that is a large part of it, also involved is being knowledgeable about what is deductible AND then tracking said deductions. I mean, if you fail to track what you can deduct, then how can you actually deduct it? Sure, you can estimate or even make it up. But guess what? That is a sure-fire way to have the IRS disallow the expense if they decide to audit your return.
To ensure that you don’t miss any business related expenses paid for during the tax year, it’s recommended that one use a tax organizer. Feel free to use our handy dandy tax organizer (checklist) as a starting point.
From there, make sure that you aren’t forgetting any of the expenses typically deducted by those in your profession. What are those? While this list is not entirely inclusive or comprehensive, it does cover most of the major items:
Copy Editor Fees
Email Marketing and Newsletters
Internet Ads (Google, Facebook, etc.)
Print Ads (Newspapers and Magazines)
Web Hosting and Domain Fees
Taxi, Train, Subway, Bus
Cell Phone Service
Hard Drives/Thumb Drives
Family Wages (e.g. kids/spouses)
Client Refreshments (Coffee, Water, etc.)
Online Storage of Business Files
Chamber of Commerce
E & O Insurance
Tax Prep Fees
Defined Benefit Plan
Simplified Employee Pension (SEP)
Training & Improvement
Books (Sales Books, Real Estate Books, etc.)
Looking for more ways to save on taxes?
Jared’s latest book, The Real Estate Brokers Little Black Tax Book is chock full of tips and strategies to help you cut your tax bill. Sure, you can buy it by clicking the book image at the top of this page, BUT, if you head over to this super secret page, you can get some free goodies. Like see a video where Jared discusses the book and get the free white paper, The 10 Tax Issues Broker Face. So what are you waiting for? The sooner you take action, the sooner you can keep more of your hard earned commissions in YOUR pocket and out of the hands of Uncle Sam!
When a homeowner wants to sell their home, but it is encumbered with an Federal tax lien (i.e. IRS Form 668(Y)), they might feel as if all hope is lost. But alas, it isn’t. In this post we’ll outline what to do if you are facing this situation and the exact steps to take.
The first thing to note is that if there is a federal tax lien on your home, you must satisfy the lien before you can sell or refinance it. Yet, there are a number of options to satisfy the tax lien. For some, if you have equity in your property, the tax lien can be paid (in part or in whole depending on the equity) out of the sales proceeds at the time of closing. For others, if the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. Additionally, taxpayers or lenders also can ask that a federal tax lien be made secondary to the lending institution’s lien to allow for the refinancing or restructuring of a mortgage. Let’s now look at what happens under each scenario.
Proceeds Satisfy The Debt – Get A Tax Lien Payoff
If the amount received from the sale will satisfy the amount of IRS debt owed, then one simply needs to obtain tax lien payoff amount.
An updated lien payoff or balance due amount may be requested from the IRS Collections Advisory Group. This unit will issue a payoff letter to taxpayers or to third parties such as taxpayer representatives, lenders, and escrow or title companies. The letter will indicate the current amount that must be paid before the IRS releases the lien.
Third parties must submit their request in writing accompanied by a properly completed Form 8821, Tax Information Authorization, signed by the taxpayer. Without a Form 8821, the IRS cannot disclose taxpayer information to third parties. The Form 8821 must address each tax period on the notice of lien and be received by the IRS within 60 days after the taxpayer signs and dates it.
Payoff requests can be made by phone (1-800-913-6050), fax (1-855-753-8177) or by mail sent to:
Payoff computations may take up to 14 calendar days to process. Two copies of all payoff letters are mailed to the requester. One copy of the payoff letter must be returned with the payment to ensure proper application and timely release of the lien. To ensure expedited processing the payment must be sent to the address identified on the payoff letter. Payments should be made payable to the United States Treasury.
Proceeds Don’t Satisfy The Debt – Obtain Lien Subordination or Discharge
What is a discharge or subordination and how can it help you sell or refinance your property? A discharge removes an entire asset (collateral) from being covered by the tax lien so that it may transfer to the new owner free of the lien. To apply for a Lien Discharge, one completes IRS Form 14135. A subordination is used to put the IRS’ position in 2nd priority. It is used to “unlock” an asset so that another creditor can be paid before the tax lien is paid (e.g. bank loan refinancing). To apply for a Lien Subordination, one completes IRS Form 14134.
Now let’s look at the specific steps on how to complete each application. To help you with the application process, you might want to review IRS Publication 783 or IRS Publication 784, which contain instructions on filling out the forms, have the application forms themselves, along with FAQ’s.
The first item of note is that the application for discharge or subordination is handled on a first come, first served basis. As such, one needs to get either application to the IRS at least 45 days before the sale or loan settlement meeting. If the Notice of Federal Tax Lien is discovered late, or the application isn’t submitted in time, the sale or loan could be delayed. If you’re trying to avoid foreclosure, be sure to indicate this on your application and the IRS will do its best to expedite your request.
Sections 1, 2, and 3 of either the discharge Form 14135 or the subordination Form 14134 are self-explanatory.
If you are using a representative, fill in Section 4, and be sure to indicate who is being represented. While having a representative is not required, if you hired someone to represent and speak on your behalf, attach IRS Form 2848. Both of you must sign this form. If you want the IRS to share your information with someone else, you would attach IRS Form 8821. If you are attaching one or both of these forms, check the “yes” box in Section 4.
In Section 5, you would fill in the contact information for your finance company.
The information in Section 6 will vary depending on the type of transaction. If you are selling, use Form 14135 and enter the sales price. If you are refinancing or getting a loan, use Form 14134 and enter both your existing and new loan amounts.
Section 7 asks for your basis for discharge or subordination. Basically, you need to check the box that best addresses what you would like the IRS to consider as the reason why they should approve your application.
Section 8 for either application form asks for a description of your property, which could be either real estate or personal property such as art work, a boat, a plane, or your business receivables. Don’t forget to provide the property address.
For Section 9 of Form 14135, when you are selling property, the IRS requires a professional appraisal, which is generally part of the closing package and a second type of value estimate. Form 14134 Section 9 does not call for a professional appraisal for your refinance or loan. Check the box for the type of value estimate you are including.
Sections 10 through 14 are a checklist of the attachments which you must include with either the discharge or subordination application form.
These next two sections only pertain to Discharge Form 14135.
If your property will be sold in an escrow sale, with creditors paid from the escrow, the IRS needs your draft escrow agreement with your Form 14135. Be sure to check the “attached” box in Section 15.
Section 16 of Form 14135 is if you bought property with a lien attached where you are not the taxpayer and you checked 6325(b)(2)(A) or (B) as your basis for discharge in Section 7.
The final section on both forms is the Declaration. Here is where you must sign and date your application under penalties of perjury.
At this point, your form should be complete. Attach all your supporting paperwork and send your application package to one of the IRS Advisory Offices. The correct mailing address of the IRS Advisory Office will be found in IRS Publication 4235. It will be the one for the state that the Notice of Federal Tax Lien was filed in.
The IRS Advisory approves or denies your request based on your application and comparison with federal and state property rules. If the IRS approves your application, they will send you your discharge or subordination certificate, based on what box you checked, or best applies to you in Section 7. If, however, the IRS denies your request, or you disagree with the IRS valuation in a commitment letter, you can request an appeal through the Advisory office using IRS Form 9423, Collection Appeal Request. IRS Publication 1660, Collection Appeal Rights, explains your appeal rights.
Need Help Removing A Tax Lien So A Property Can Sell?
We know that having a notice of federal tax lien a property raises many complex financial issues. Our in-depth coverage of the subordination and discharge application forms was designed to give you insight into what is needed to be able to successfully navigate through the application process. However, as this article should not be construed as advice, one is advised to check IRS publications, talk to the IRS Collections Advisory Group or contact a tax advisor for more details.
Don’t feel like doing any of the above? We don’t blame you! So, if you are trying to sell your home, are a real estate agent or title company that just found out that a deal has a tax lien on it, or are concerned with a deal closing on time, contact us NOW.
We can work with the IRS (so you don’t have to) so that the deal can close. Nothing feels better then a homeowner selling their home and getting the IRS debt monkey off their back or a real estate agent getting a commission check from a deal that was in jeopardy!
As a broker, your primary job is marketing. Marketing yourself, your services, your client’s properties… you get the idea. Once the marketing is done, you then move on to the sales side of the house. You know, getting the clients to fall in love with the property, dealing with objections, bringing them back to reality, and ultimately getting the parties to sign a contact. Once those two things happen, you then move on to the technical part of your job. That is, the actual part of dealing with the real estate transaction itself and wrangling all the other parties that become involved.
Yet what was not obvious in the three roles mentioned above is this: you are also actually running a business. Furthermore, running a business is not what your pre-licensing class trained you to do. Still further, you were not trained on taxes and how they impact your business or your client’s scenario. To that end, it is your accountant’s job to help you understand and navigate these items. So, if you are going to select a partner to help you in this area, would it not make sense to find one who is experienced? Given the above, that is where this book and I enter the picture!
My goal for writing this book is three-fold. First, I want to help you understand how taxes impact you both from the standpoint of being a business owner as well as from the perspective of reducing them. It is important for all taxpayers to understand their responsibilities, the associated rules, and what can be done within those rules to legally reduce their tax liability. Second, like CPAs and other tax professionals, brokers are advisors to their clients. The better equipped you are to help your client as it relates to certain tax aspects of their transaction, the more efficiently you can address problems and close deals. Besides who does not like to close more deals? No broker that I am aware of!
Finally, tax problems are commonplace with those who earn money where no income tax withholding occurs. Think of anyone who is paid via cash (or check) or as an independent contractor (i.e. self-employed): dentists, brokers, attorneys, truck drivers, construction contractors, etc. I have known a fair number of brokers who have tax problems. As a CPA authorized to represent taxpayers before the Internal Revenue Service (IRS), I help them solve those issues. Not only do I assist them in resolving their issues, but also those of their clients so that deals can close. The key thing to know is that no matter how bad it initially seems, I have never been unable to help a client solve their tax debt matter.
Check out the video below to hear more and look below the video on ways that you can place an order.
You can also view this video on our YouTube Channel here.
How To Order Your Copy
Order directly from our office. You can order via credit card by clicking the “Buy Now” button below. If you select the “autographed with my custom message” option, you will be contacted post order to obtain your message. Please note that payment processing is performed via PayPal and if you do not have an account, you can simply select the option to pay with credit or debit card at the bottom. All orders processed via this method include Illinois sales tax as well as priority shipping via USPS.
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Order via Amazon.If you do not want an autographed copy, or do not want to order via our office, you can order your copy via Amazon. Simply visit the author page for Jared R. Rogers, CPA and complete your order that way. You will have the choice of ordering either the paperback or Kindle edition.
Every tax season we encounter some common issues and errors surrounding business owners who desire to be taxed as a S Corporation (S-Corp) by the IRS. What might those issues be? Well, usually one of the following:
Failing to make the S-Corp election entirely because they didn’t realize that Form 2553 needed to be filed with the IRS
Failing to make the election in a timely manner
In one of our previous posts we discuss the qualifications to become a S-Corp and some of the tax considerations. In this post, we are strictly going to discuss how to make the election and what to do if the deadline is missed.
When to Submit Form 2553
Form 2553 is used to tell the IRS that you want a corporation (or entity eligible to be taxed as a corporation, such as a single member LLC) to be taxed as a S-Corp. It is due:
No more than 2 months and 15 days after the beginning of the tax year the election is to take effect,
or at any time during the tax year preceding the tax year it is to take effect.
You can file the election at any time after thee above deadlines if your corporation meets the criteria for making a late S-Corp election (which we will discuss next).
It is important to note that the S-Corp election is made with the IRS, not the state. One is NOT changing their entity structure with the state. They are merely asking the IRS to tax the entity in a certain fashion. To help clarify what the election deadlines look like in practice, we’ve provided the following example:
Example 1 – New Corporation. New Corp, operates on a calendar year. It incorporated and began its first tax year on January 7th 2019. The 2-month period ends March 6th and 15 days after that is March 21st. To be a S-Corp beginning with its first tax year, it must file Form 2553 during the period that begins January 7th 2019 and ends March 21st 2019 (i.e. 2 months and 15 days after it incorporated). Because the corporation didn’t exist prior to January 7th, an election requesting an effective date prior to January 7th 2019 won’t be granted by the IRS.
Example 2 – New Corporation With Short Tax Year (less than 2 1/2 months). Short Corp, operates on a calendar year. It incorporated and began its first tax year on November 8th 2019. The 2-month period ends January 7th 2020 and 15 days after that is January 22nd 2020. To be an S corporation beginning with its short tax year, the corporation must file Form 2553 during the period that begins November 8th 2019 and ends January 22nd 2020. Because the corporation didn’t exist prior to November 8th, an election requesting an effective date prior to November 8th 2019 won’t be granted by the IRS.
Example 3 – Established Business. Old Corp, operates on a calendar year. It has been filing Form 1120 as a C corporation but wishes to make the S-Corp election for its next tax year (e.g. 2020) beginning January 1st. The 2-month period ends February 28th (the 29th in leap years) and 15 days after that is March 15th. To be a S-Corp in 2020, the corporation must file Form 2553 during the period that begins the first day (January 1st) of its last year as a C corporation (i.e. 2019) and ends March 15th of the year it wishes to be an S corporation (i.e. 2020). Because the corporation had a prior tax year, it can make the election at any time during 2019 but NO LATER than 2 months and 15 days beyond January 1st 2020 (i.e. the tax year the election is to be effective).
For the specific steps on when, where and how to submit your S-Corp election request, please refer to the Form 2553 Instructions per the IRS.
Requesting Relief for A Late S-Corp Status Election
So what happens if the deadline has passed to make the S-Corp election or you didn’t even know there was a deadline? Lucky for you, the IRS realizes that people makes mistakes and offers you some options to correct the oversight. They basically fall into the categories of:
Simply make the election effective for the NEXT year
Request relief stating that there was “reasonable cause”
Request relief using an IRS Revenue Procedure
Make the election effective next year. For those who miss the deadline, but don’t need it to be effective immediately, they can simply request that if be effective for the next year. For example, if you incorporate in late December 2019, but miss the March 15th 2020 deadline, you can always request that the election be effective for Tax Year 2021 by submitting Form 2553 prior to January 1st 2021.
Request relief on the grounds of reasonable cause. Reasonable cause refers to when a taxpayer didn’t file the forms on time due to a “valid reason” so to speak. In most cases, we’ve found the IRS to be fairly lenient when it comes to granting relief and allowing a corporation to elect S-Corp status in the year intended. Please note that reasonable causes may vary, and the IRS does not publish a list of what it considers to be one that is valid. However, there are numerous court cases that show that certain reasonable causes are “nearly always” allowed. Two of these typically include:
The company’s president, chief executive officer or similar responsible person neglected to file the election, or your corporation’s tax professional or accountant neglected to do so.
The corporation or its shareholders either did not know of the need to file an election or didn’t know they needed to file the election by a certain date.
If you are going to request relief on the grounds of reasonable cause, make sure that you address the following points within your statement:
What happened that caused the filing to be late and when did it happen?
How did these facts and circumstances result in the forms not being filed on time?
How did the company handle its financial and tax affairs during this time? Meaning, did they operate as if they were a S-Corp or did they delay individual income tax filings because they were intending to be a S-Corp?
What attempt did the company make to correct the situation when they learned they did not make the election correctly?
Request relief using an IRS Revenue Procedure. Rev. Proc. 2013-30 (PDF) facilitates the grant of relief to those who make a late S-Corp election. This procedure provides guidance for relief for late:
S corporation elections,
Electing Small Business Trust (ESBT) elections,
Qualified Subchapter S Trust (QSST) elections,
Qualified Subchapter S Subsidiary (QSub) elections, and
Corporate classification elections which the entity intended to take effect on the same date that the S corporation election would take effect.
Generally, the relief under the revenue procedure can be granted when the following requirements are met:
The entity intended to be classified as an S corporation, is an eligible entity, and failed to qualify as an S corporation solely because the election was not timely;
The entity has reasonable cause for its failure to make the election timely;
The entity and all shareholders reported their income consistent with an S corporation election in effect for the year the election should have been made and all subsequent years; and
Less than 3 years and 75 days have passed since the effective date of the election.
To assist in determining if an entity qualifies for late election relief, Rev. Proc. 2013-30 includes flow charts, as well as specific guidance for each of the five categories listed above.
If an entity does not qualify for relief under Rev. Proc. 2013-30, the entity may request relief by requesting a private letter ruling. The procedural requirements for requesting a letter ruling and the associated fees are described in Rev. Proc. 2019-1 (PDF). For more information on late election relief, check out this page on the IRS’ website.
Need help correcting a late S-Corp election? We’ve helped many companies that thought they filed their election or didn’t know they needed to file by a certain deadline obtain their desired S-Corp status. If you find yourself in this unfortunate predicament, you’re best advised to seek a professional who knows how to address the situation.
To that end, give us a call at 773-239-8850 or shoot us an email via the address contained in the footer of this page. The sooner you put us to work for you, the sooner you can have your election granted to you by the IRS!
If you have “tax problems” then there is no better day to start dealing with them than National Get Out of The Doghouse Day! No, this is not some dreamed up holiday to sell greeting cards and it is actually real. Don’t believe us? Then check out this post over at the National Day calendar and you’ll see that it’s on the third Monday of July. So if you’re not sure how to get out of the dog house with the IRS or the state tax authorities, then here are 5 things you can do:
Open your mail.
When clients come to us to tackle their back taxes, many will often have several if not a dozen (or two) unopened letters. These may be from the Internal Revenue Service (IRS) of their state department of revenue. While many feel that not opening the letters keeps the problem at bay, it can actually make things worse. Did you know that many times when the IRS is attempting to assess a tax to someone, that they have to give them a chance to disagree? But there often comes a time where they give you a window, say 90 days, before what they propose becomes reality. If you fail to respond, you can get stuck with something that isn’t actually reality.
So the single best thing you can do to solve your tax problem is open your mail AND read it. What the letter says is actually not as bad as you think. Plus, there is no way that opening your mail is going to make the situation worse!
Address any unfiled tax returns.
One of the biggest tax cases that we worked on involved a taxpayer who had not filed since 1999. It was 2014 when we were getting involved with their matter. That’s 15 years of unfiled taxes! But don’t worry, according to the IRS Data Book SOI Tax Stats, there were over 13.1 million taxpayers with unfiled returns. So if you have unfiled returns, then know that you are not alone.
People fall behind on filing their tax returns for many reasons. Health issues, death of a loved one, fear, procrastination all have a place in keeping people from filing. But the one thing we see come up routinely is “I did’t file because I know I owe and I can’t pay it.” While this may be a true statement, it shouldn’t stop one from filing. Filing on time is best, but filing late is better than not filing. Similarly, not paying your taxes isn’t good, but paying late is better than not paying at all. There are penalties for not filling and not paying, but they are only calculated ONCE YOU FILE. And if you can’t pay what you owe? We’ll the IRS is always willing to set up a payment plan (installment agreement) with you to settle up.
If you have unfiled returns, you might want to talk to a tax advisor (see last point) prior to filing. While it may seem “correct” to file all of the unfiled tax returns, it may not be needed. While the IRS can “technically” ask for the last 10 years of unfiled returns, it often doesn’t. Furthermore, if you are owed a refund on any of those unfiled returns, the IRS will only issue it for the last 3 years. Anything older than that will be refortified due to the statute of limitations. As such, a tax advisor can help you determine what returns need to be filed to help you get back into the good graces of the IRS or the state.
Identify the root cause of your problem and face it head on.
We’ve all heard that insanity is doing the same thing over and over expecting to get a different result. Well, if you keep finding yourself in tax trouble, maybe you should figure out what is not working and change it. For example:
Have more taxes withheld from your check by decreasing your withholdings on your W4
Don’t claim “exempt” on your W4 unless you ARE actually exempt from paying income taxes (hint – most people aren’t exempt)
Start paying estimated taxes if you are self employed or your income is reported to you on a Form 1099-MISC or Form 1099-K
Withhold from your retirement income or social security if you are retired and constantly find yourself owing the government
Make sure that you are claiming all the deductions and credits you are entitled to
Review your filing status and make sure that you are using the one that is most advantageous to your situation (e.g. Head of Household if you are a single parent)
Reach out to the tax authorities.
Putting your head in the sand is not going to solve the issue. If you contact the IRS, they can tell you the current status of your account as well as what they want you to do to solve your tax matter. For example, they can tell you want years they want you to file and even give you copies of the tax records you need to file them if you’ve lost your records (it’s called a Wage & Income Transcript).
To reach out to the IRS, start with the last notice that you’ve received. It will have an address on the top left hand corner and a contact name and/or phone number in the top right hand corner. This will be the best contact to use because the folks at that number will understand what’s going on with your account as of now.
But if you’ve lost the notice or you have other issues, you can call the IRS at 1-800-829-1040, Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time. If you’re calling about a business tax account, call 1-800-829-4933, Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time. If you have a hearing impairment, call 1-800-829-4059 (TDD), Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time.
Find a qualified tax advisor if needed.
Many people (approximately 40%) use software to prepare their tax returns. But if you get into tax trouble, a qualified tax advisor can be well worth their weight in gold. We don’t recommend that you shop for one based on price, but we do recommend that you find a person/firm that is open AFTER April 15th. Remember, the IRS doesn’t typically contact you during tax season and the notices associated with their matching program typically are sent between March and October following the year the return was due (e.g. 2019 for TY 2017 returns that were due in calendar year 2018).
To that end, you want to find someone who:
understands tax (i.e. filing returns), tax debt issues and has experience resolving YOUR particular situation
has the credentials to represent you before the IRS so you don’t have to ever speak to them (e.g. EA, CPA, JD)
has a good personality fit with you as the two of you will have to work closely with one another
Need tax help?
We routinely help taxpayers get current and compliant and enter into resolution options with the IRS or state. Do you need help? Feel free to check out this page of our site then shoot us an email or give us a call. The sooner you do, the sooner you can but your tax nightmares behind you and get out of the doghouse!
You go to the mailbox and one of the letters has a return address that sends chills down your spine: IRS. While most people don’t like being contacted by the IRS, many of their letters are no cause for panic because they are not audit related. However, they should also not be ignored as some of them are time bound and require a response. This post will discuss some of the common notices the IRS sends and how to interpret what it means.
IRS notice types
The IRS sends notices for many reasons: bills for overdue taxes, requests for you to file a missing tax return, to request additional information about something, notify you of a pending deadline, etc. When the IRS sends a letter via certified mail, it’s giving you legal notice that they intend to levy you, file a lien against you, or that they will examine or audit you or your business. The notice will ALWAYS thoroughly explain why you are receiving it. READ IT.
The very bottom of this post list some of the many notices that the IRS sends and provides you with a brief explanation. If you click on the green notice number, you will be taken to the IRS site where you can read some further details about that particular notice. If you want to see examples of the notices listed, then click this link and sort the notices by name to find the one your’re looking for.
What IRS notices are particularly important?
Any of the notices that deal with collections, should be “handled with care” so to speak. Why? Because if one doesn’t address them, they could find themselves on the wrong side of the IRS pretty quick. What are these notices?
We haven’t received your payment for overdue taxes. We intend to seize your property or rights to property (levy). You must contact us immediately.
What if you still don’t understand the notice after reading it?
We can help via our notice evaluation service. For $75 we will analyze your notice and provide you with a detailed explanation (in plain english) of what it means. We’ll also review your IRS account (with your consent and the filing of some paperwork) if you have debt and even provide your IRS CSED (the date your IRS debt will expire).
Call us at (773) 239-8850 or click our email address at the bottom of this screen to get started.
You received a CP 01H notice because we were unable to process your tax return. The IRS has locked your account because the Social Security Administration informed us that the Social Security number (SSN) of the primary or secondary taxpayer on the return belongs to someone who was deceased prior to the current tax year.
Our records show that you or your spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice. As a result, you may be eligible for tax deferment.
We made a change(s) to your return because we believe there’s a miscalculation. This change(s) affected the estimated tax payment you wanted applied to your taxes for next year.
We made a change(s) to your return because we believe there’s a miscalculation involving your Earned Income Credit. This change(s) affected the estimated tax payment you wanted applied to your taxes for next year.
We made changes to your return because we believe there’s a miscalculation. You’re not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.
We made changes to your return because we found an error involving your Earned Income Credit. You’re not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.
You owe taxes and penalties because you didn’t take out the minimum amount you had to from your traditional individual retirement arrangement (IRA). Or, you put into a tax-sheltered account more than you can legally.
We sent you this notice to tell you about changes we made to your return that affect your refund. We made these changes because we believe there was a miscalculation. Our records show you owe other tax debts and we applied all or part of your refund to them.
We have increased the amount of tax you owe because we believe you incorrectly claimed one or more deductions or credits.
We believe you incorrectly claimed one or more deductions or credits. As a result, your refund is less than you expected.
We made the change(s) you requested to your tax return for the tax year specified on the notice. You’re not due a refund nor do you owe any additional amount. Your account balance for this tax form and tax year is zero.
We made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You have a balance due because of these changes.
We made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You have a potential overpayment credit because of these changes.
We made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You have a potential overpayment credit because of these changes.
We made changes to your return because we found a difference between the amount of estimated tax payments on your tax return and the amount we posted to your account. You’re not due a refund nor do you owe an additional amount because of our changes. Your account balance is zero.
When a taxpayer retires, they will start to receive money from their retirement plan (e.g. pension or annuity). As the payments are made to you, each payment will consist of two parts. One portion will be the amount (if any) that you contributed to the plan and the second portion will be the piece the employer contributed (or the earnings).
You are not required to enter the total employee contributions or designated Roth contributions that are reported in box 9b. However, failing to do so may cause you to pay more tax than you should.
What does an amount in box 9b mean?
The amount shown is the total amount of after-tax contributions you paid to your retirement plan while working. It’s used to determine the after-tax contribution amount shown in Box 5. If you want to know what each field on Form 1099-R means, then check out this informative illustration.
Do you pay tax on this amount?
If you made post-tax contributions to your retirement account, you don’t pay income taxes on the portion of the distributions you receive based upon the amount for which you were already taxed. This is referred to as your “basis” in the plan. If the taxpayer didn’t make any after-tax contributions to the retirement plan (which is often the case), then the “basis” is zero, and each distribution from the retirement plan is 100% taxable.
So what do you do with this amount?
If you are using software, then you want to include it somewhere to indicate your basis. If you are doing your taxes manually, then there is an IRS Simplified Method Worksheet that determines the amount of basis that is included in each periodic payment. This worksheet will help you determine how much basis the taxpayer should spread out over the payments they receive. If you are using a professional, they should know what to do!
people tend to panic when they receive a notice from the IRS. Many, many people
think that by stuffing that notice under the mattress, the problem will go
away. Unfortunately, it doesn’t work like that. The best way to address a
notice from the IRS is to deal with it immediately and head on. Here are some
tips for what to do when you receive an IRS notice.
1. Don’t panic, and don’t shred it. Most IRS notices can be dealt with pretty simply. Not quickly,
2. Be sure you understand WHAT the notice is for. The IRS sends all sorts of notices — bills for overdue taxes, requests for you to file a missing tax return, to request additional information about something, notify you of a pending deadline, etc. When the IRS sends a letter via certified mail, it’s giving you legal notice that they intend to levy you, file a lien against you, or that they will examine or audit you or your business. The notice will ALWAYS thoroughly explain why you are receiving it. READ IT.
3. Every notice from the IRS will explain what
you need to do with it. If they want extra
information from you, it will explain what information they need. If it’s a
bill, well, then they just want your money.
4. If you receive a notice about a correction
to your tax return, you should review the
correspondence and compare it with the information on your return.
5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due. The IRS will just “fix” the issue and then send you a bill (if one is needed).
6. If you do not agree with the correction the IRS made, it is important that you respond as requested. IRS notices are typically time bound and failing to respond in time can cause you to forfeit some of your rights/options. Respond to the IRS in writing to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left corner of the notice. Allow at least 30 days (sometimes it can take up to 90 days) for a response from the IRS.
7. Most correspondence can be handled without
calling or visiting an IRS office.
However, if you have questions, call the telephone number in the upper right
corner of the notice. When you call, have a copy of your tax return and the
8. Keep copies of any correspondence with your
tax records. Also keep record of who
you talk to, including their IRS employee ID number (they’re required to give
it to you), and detailed notes of your conversation.
Don’t understand your notice?
If you receive a notice that you don’t understand or don’t agree with, then obviously consider speaking to a professional (such as ourselves). Feel free to email us via the address below in the footer. We can review a copy of your IRS notice, tell you what it means, and tell what you need to do about it, in simple terms.