The No. 1 Mistake People Make When Dealing With the IRS

If you get a tax notice from the IRS, don’t put your head in the sand. Instead, call your tax advisor or a tax resolution specialist.
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Dealing with the IRS is usually a scary subject for most people. If they receive a piece of mail from the IRS, they might look at it a while before opening the envelope...if they open the envelope at all. They don’t want to know what’s inside because it’s almost always bad news. They know they owe the IRS and think that if they just don’t open the envelope, the problem will go away! This is the No. 1 problem people have when dealing with the IRS: putting your head in the sand. This is no good, and it will only result in another piece of mail from the IRS in about a month, right about the time you forget about the first letter. Perhaps you finally open the second envelope and find that you owe the IRS a ton of money. You have no idea what to do, so you call the phone number on the tax notice and get put on hold for about an hour before you talk to someone. The IRS agent then talks to you about how you messed up and didn’t report some income, or how you’re getting audited and better pay up or be prepared to defend yourself. They tell you to pay now or you will have more penalties and interest or you could get your bank accounts and property levied. You might not know what “levied” means, but you know that it’s a very bad thing and understand that you could lose your property to the IRS. 

If you have a problem with the IRS, it won’t go away if you just stick your head in the sand.

We have all heard stories about the big bad IRS taking people’s bank accounts and homes. So what do most people do? They panic and hang up, of course. The problem will go away if they ignore it. Again, this is not good. What should you do instead? If you receive a tax notice from the IRS, open it immediately. If it’s not just a little amount for interest, call your tax advisor or a tax resolutions specialist. We are equipped to work with the IRS for you. By the way, if you ever receive a call from the IRS, whether it’s from a human or it’s a robocall, immediately hang up. This is a scam. The IRS never calls—they only send mail through the US post office. Additionally, you should sometimes beware of those mail items, because they can occasionally be scams too. It’s a scary world, so call your tax resolutions specialist if in doubt. If you have any type of tax problem, you should protect yourself by hiring a qualified tax problem specialist. We’re experienced in negotiating with the IRS to get you the lowest amount that you have to pay. If you have any other questions about this topic, you have a tax problem, or you know someone with a tax problem, don’t hesitate to reach out to me. I look forward to hearing from you.

The Truth About Being a 1099 Employee

What tax-related issues can arise for self-employed people and 1099 employees? Let’s discuss this critical subject today.
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Today we’re going to talk about the 1099 self-employed and their growing tax problems. This is a subject I deal with all the time when speaking with clients. Many of the people I have conversations with have no idea how to get into business, and make a lot of tax mistakes that end up costing them dearly. While, by definition, a person getting paid as an independent contractor, such as a Realtor, is self-employed, many employers try to pay their “employees” as independent contractors. They do this to selfishly save on costs like payroll taxes, worker compensation insurance, and benefits. As a result, this creates serious tax problems for 1099 employees, because they generally don’t understand the costs they’re agreeing to pick up. This includes expenses such as the IRS Self-Employment tax, Federal and State tax, insurance, and more. Many times, the unsuspecting 1099 employee is lured in by the prospect of earning more than a regular employee. The prospect of being able to work for more than one employer is attractive, as it suggests the possibility of increased income and independence. Being self-employed, though, equates to a huge cost and responsibility, as you will be required to pay 15.3% in Self-Employment tax on your profits. 1099 employees must also put aside estimated tax payments for this cost, as well as their federal and state income tax. Most who start out with this responsibility simply don’t understand the full financial ramifications and penalties associated with neglecting these payments. Instead, most 1099 employees simply receive their “paychecks” from their employees and spend the funds without regard these expenses. Personally, I would guess that 90% of newly self-employed people get surprised with a huge tax bill in their first year.

Being self-employed, though, equates to a huge cost and responsibility.

This lack of preparation puts them into a terrible and terrifying pattern of not paying, getting an installment agreement with the IRS, etc. They simply don’t have the money to get out of this cycle and also don’t want to compromise the spending that supports their personal lifestyle. Year after year, this problem will only grow. For example, I’m currently working with a young man who is a 1099 employee. This man’s wife is a regular employee, but under-withholds on her income taxes. For the past five years they’ve been accruing close to $10,000 each year. Now, they’ve accumulated a debt of $50,000 and are in the middle of getting divorced, while still facing this huge tax problem. Now, their only solution is to sell their home and use the proceeds to pay part of their taxes, as well as either using Installment Agreements to pay the remaining past taxes or an “Offer in Compromise” to decrease their debt. The young man is still a 1099 employee, but I am currently helping him sort through the prospect of becoming a regular employee. This transition would lead him to technically receive lesser pay, but, as I explained to him, the offer of lesser pay in this case is actually more than he’s currently earning as a 1099 employee. So, moving on from this situation, I’d like to address an important question: When should a newly self-employed person consult with a tax advisor? Actually, the answer is as soon as possible. Any delay in this consultation will cause issues. It’s easy to get in over your head, but hard to know what to do once you are. Once people reach this point, it’s critical for them to reach out to a tax professional who can help them work through their circumstances. And I don’t know of any tax professional that provides specific mentoring and guidance 1099 employees and self-employed people the way I do. So, if you are facing this problem, please give me a call or send me an email. I would be happy to guide you. And, as always, if you have any other questions or would like more information, feel free to get in touch. I look forward to hearing from you soon.

Don’t Ignore Inheritance Assets When Filing Your Taxes

Taxpayers often make the mistake of ignoring inheritance assets on their tax return. I’ll explain how to avoid and fix this mistake today.
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A frequent error taxpayers make is ignoring inheritance assets. When a person inherits stocks or other assets, they often believe that they are not taxed. This is partially correct; the assets are not taxed when received. But when the assets are sold later on, you must report the sale on your tax return. I’ve had many cases where ignoring these sales caused tax notices with huge taxes, penalties, and interest that surprised and scared the taxpayer. Since inherited assets receive a step up in basis (or tax cost), there is often very little gain or loss. There would be little, if any, effect if a sale occurs quickly after inheriting these assets and the sale is reported correctly.

When the assets are sold later on, you must report the sale on your tax return.

To correct this problem and eliminate surprise taxes, we must amend the original tax return that ignored the sale and provide evidence of the death of the person receiving the stocks, stock ownership statements showing the history of previous ownership, and receipt and eventual sale. I have had several cases where, in the end, there is very little tax effect. The time and fees paid to a professional to amend a tax return are expensive. A taxpayer can save themselves a lot of grief and money by understanding that any asset they inherit and later sell must be reported on their tax return. If you have tax problems, you should protect yourself by hiring a qualified tax problem specialist. We have experience in and strategies for negotiating with the IRS to get you the lowest amount that you have to pay. If you have any questions, just give me a call or send me an email. I would be happy to help you!