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You Owe the IRS…Now What?

You Owe the IRS!

Now what do you Do?

Let’s Talk About Your Options!

George and Shirley came to see me to complete their tax return. They had been referred to me by another client of mine.

George and Shirley had been blessed to have great and stable jobs. Even better, Shirley won a contract to provide support services to a government contractor. As they had never run a small business, they were referred to me to help them. Unfortunately they waited until 2015 to contact me as opposed to 2014 immediately after she won the contract.

The good news was winning the contract, the bad news was they owed more taxes than they expected. I explained through tax planning we could have avoided the situation if they had contacted me prior to year end last year. With that not happening, there were several options open to them.

Their options were:

  1. Pay the balance due in fall
  2. Get a loan to pay the balance
  3. Borrow from retirement accounts
  4. Offer in Compromise
  5. Currently Not Collectible
  6. Bankruptcy
  7. Installment Agreement
  • Paying the loan in full or borrowing from a lender or from their retirement were options they either couldn’t do or were unwilling to do.
  • An Offer in Compromise allows you to offer the IRS a lower amount than is currently owed. Because of their income and assets, George and Shirley do not qualify for the Offer in Compromise.
  • Currently Not Collectible allows you to delay collection action if you can prove that you don’t have the income or assets to pay the debt. George and Shirley couldn’t quality because of their income and assets.
  • Bankruptcy was also an option but the tax debt was too new to be considered and they did not want to affect their credit.
  • The last options available were an Installment Agreement (IA). With an IA you agree to pay the IRS a set amount monthly until the debt is paid. There are three options with installment agreement; each depending on the amount due.

If you owe the IRS less than $10,000 you qualify for the Guaranteed IA. Your minimum acceptable payment is $25 a month debt is paid. Certain qualifications must be met to qualify, these include but are not limited to owing only income taxes and no other types of taxes; not able to pay taxes immediately out of savings or other means, have not had an IA in the last 5 years and able to pay the tax fully within 3 years (36 months).

If you owe more than $10,000 but less than $25,000 you may qualify for the Streamlined IA. Like the Guaranteed IA, you are not required to fill out a personal financial statement and can setup a payment plan even if you have the means to pay the tax liability in full. Additional qualifications include filing all returns on time, paid in full during the payment period.   Also, the tax liability must be paid within 5 years (60 months) or before the Collection Statute Expiration Date (CSED) which is a ten year period from the tax assessment date.

If you owe more than $25,000 you’ll work with a revenue officer who’ll require you to complete and submit personal financial statement with supporting documentation. A decision will be made based on your numbers as to how much you can pay. The IRS will compare your monthly income and your monthly allowable expenses and the difference is the amount the IRS will expect you to pay.   You’ll pay this amount until the debt is paid in full or until you reach the CSED.   The IRS may ask you to authorize an extension of the CSED in order to qualify for this payment plan.

George and Shirley owed slightly more than $25.000 so I suggested they pay an amount that brought them below $25,000 so they could qualify for the Streamlined IA. As such they were able to negotiable a monthly payment that they could live with!

Additionally I immediately began reviewing their personal finances and business income for changes we could make now so they wouldn’t owe in the future.   This was ultimately a good outcome for them. What about you?

If you find yourself owing the IRS and want an open and honest discussion about your options, schedule an appointment at THIS LINK and come to see me. Don’t put it off…it will only get worse.

Let’s beat the IRS together….Legally.

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Should You File Married Filing Jointly?

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One of the most frequently asked questions I get during tax season is “Should I file Married Filing Jointly or Married Filing Separately?”

My standard answer is to ask your preparer to prepare the return both ways so you can see which gives you the highest refund.

More specifically, Married Filing Separately does not offer the same benefits as Married Filing Jointly.

From IRS Publication 501 (I emphasized the bolded items)

If you choose married filing separately as your filing status, the following special rules apply. Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for.

 

  1. Your tax rate generally is higher than on a joint return.
  2. Your alternative minimum tax exemption amount is half that allowed on a joint return.
  3. You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer’s dependent care assistance program is limited to $2,500 (instead of $5,000 on a joint return). However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. See Joint Return Test in Publication 503, Child and Dependent Care Expenses, for more information.
  4. You cannot take the earned income credit.
  5. You cannot take the exclusion or credit for adoption expenses in most cases.
  6. You cannot take the education credits (the American opportunity credit and lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction.
  7. You cannot exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.
  8. If you lived with your spouse at any time during the tax year:
    1. You cannot claim the credit for the elderly or the disabled, and
    2. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
  9. The following credits and deductions are reduced at income levels half those for a joint return:
    1. The child tax credit,
    2. The retirement savings contributions credit,
    3. The deduction for personal exemptions, and
    4. Itemized deductions.
  10. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
  11. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.
Adjusted gross income (AGI) limits.    If your AGI on a separate return is lower than it would have been on a joint return, you may be able to deduct a larger amount for certain deductions that are limited by AGI, such as medical expenses.
Individual retirement arrangements (IRAs).    You may not be able to deduct all or part of your contributions to a traditional IRA if you or your spouse were covered by an employee retirement plan at work during the year. Your deduction is reduced or eliminated if your income is more than a certain amount. This amount is much lower for married individuals who file separately and lived together at any time during the year. For more information, see How Much Can You Deduct? in chapter 1 of Publication 590-A.
Rental activity losses.    If you actively participated in a passive rental real estate activity that produced a loss, you generally can deduct the loss from your nonpassive income up to $25,000. This is called a special allowance. However, married persons filing separate returns who lived together at any time during the year cannot claim this special allowance. Married persons filing separate returns who lived apart at all times during the year are each allowed a $12,500 maximum special allowance for losses from passive real estate activities. See Rental Activities in Publication 925, Passive Activity and At-Risk Rules.
I understand that there may be “back tax” issues, child support or unfiled taxes that could affect your particular situation, so again, have your preparer run the return both ways so you can see whether Married Filing Jointly or Married Filing Separately is right for you.
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10 Things to Do if You’re Unemployed!

Just began reading a book by Jon Acuff called “Start”.   Everything begins with an action, a first step, is the gist of the book.  However, Jon has an Appendix in his book named “10 Thing to Do If You’re Unemployed” which I thought was great.

I’ve listed the 10 things below with a combination of his thoughts and mine.

Let’s jump in –

1.  Remind yourself what you lost.  You didn’t lose your identity; you lost your job.   You still have your knowledge, skills and experience.  You’ll just be putting them to use for yourself or someone else.

2.  Be honest about the calendar.   Fear will tell you that this is forever.  Not true.  It’s a season what will come to a conclusion.

3.  Flip the numbers.    Don’t listen to the news about the unemployment rate.  If the unemployment rate is 9%, that means that 91% are working.  Get into the top 91%.

4.  Think about your circles – Geography, industry and commitment.   Have a true commitment about find employment.  If need be, expand your geography – the cities or states you are looking in,  and then industry – if not the industry you last worked in, then what your industries might your particular set of skills be applied to.

5.  Finding a job is your new job.  Don’t ever think of yourself as jobless.  Check your commitment and make yourself accountable to your new job.   How many resumes sent, how many interviews attended, how many walk-ins you made,  how many phone calls to friends who are employed.   Don’t let rejection hinder you.  Your goal is to get all the no’s out of the way as fast as possible to get to the 1 yes that matters.

6.  Get a stopgap job.   Even a part-time job you don’t like is better than sitting home being depressed.  At least you are out of the house and you never know who you’ll meet.

7.  Stay in job shape.  Continue to get up early, continue to have a schedule.   Get up, get showered, get dressed and have places to go.   Oprah, CNN, The Doctors, Dr. Oz all have jobs already.

8.  Get plugged into a community.  Don’t get isolated or fear and doubt will set in.  Plug into a community of people who are looking for new jobs, keep each other encouraged and celebrate their successes as you continue to seek your own.

9.  Start a blog, or Twitter or Facebook or Linkedin page.  Write about the industry you know.   When you get a interview you’ll be able to tell the interviewer how passionate about the industry you are and then prove it.

10.  Put results at the top.    Rewrite your resume to include a short paragraph or section called “Results”.   Every employer wants to know what have you accomplished rather than what your goals or objectives are.   They want to know what have you successfully done and if it can be translated and applied to their company.

I pray right now that if you are unemployed or underemployed that GOD leads you to new ideas and new endeavors and that HE gives you the strong desire to right now get up and start down the path to new employment or a new business.     In Jesus Name, I pray.   Amen.

Get Jon Acuff’s book, Start and as the Greek philosopher, Nike said, “Just Do It!”

To Your Spiritual, Mental, Emotional and Financial Health,

James Fleming

 

 

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Little Wisdoms to Remember

These were passed on to me in an email several years ago.   I thought you might like them.

  1. No one can ruin your day without YOUR permission.
  2. Most people will be about as happy as they decide to be.
  3. Others can stop you temporarily but only you can do it permanently.
  4. Whatever you are willing to put up with is exactly what you will have.
  5. Success stops when you do.
  6. When your ship comes in..make sure you are willing to unload it.
  7. You will never “have it all together”.
  8. Life is a journey, not a destination.  Enjoy the trip!
  9. The biggest lie on the planet:  “When I get what I want I will be happy.”
  10. The best way to escape your problem is to solve it.
  11. Ultimately, “takers” lose and “givers” win.
  12. Life’s precious moments don’t have value unless they are shared.
  13. If you don’t start, it’s certain you’ll never arrive.
  14. We often fear the thing we want the most.
  15. He or she who laughs…lasts.
  16. Yesterday was the deadline for all complaints.
  17. Look for opportunities.. not guarantees.
  18. Life is what’s coming..not what was.
  19. Success is getting up one more time.
  20. Now is the most interesting time of all.
  21. When things go wrong… don’t go with them.
  22. If you’ve found you’ve dug yourself a hole…stop digging!
  23. It’s difficult to drive forward if you’re always looking in the rear view mirror.

Hopefully these gave you smiles and some wisdom and insight.

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6 Steps Small Businesses Can Take to Reduce Their Taxes!

A few days ago I published an article about 5 steps you could take to reduce your taxes.   A couple of clients said that article was aimed at individuals, so how about an article for the small business owner.   So I agreed and here we go…..

  1. Establish and maintain a good bookkeeping system or hire a bookkeeper.  Far and above anything else, good bookkeeping will reduce your tax liability.    Being able to identify and properly record all of business income and expenses will reduce your tax liability and give you peace of mind if you are ever audited.
  2. Make sure you select the right operating entity for your business – LLC, Sole Proprietorship, Partnership, S Corp or C Corp.   Each has its own advantages and disadvantages.   Choose wisely.
  3. Hire your family…especially college age children.   (See the next 2 steps)
  4. Establish an Educational Assistance Plan (EAP).   You can help outset the cost of college by establishing an EAP for your employees (see Step 3).  The EAP could reimburse them for cost of classes, books etc and you get to write it off as a legitimate business expense.
  5. Establish a Medical Expense Reimbursement Plan (MERP).   The MERP allows your employees to be reimbursement for medical expenses that they ordinarily could not write. (Limitations apply depending upon operating entity and dollar amounts reimbursed).
  6. Establish a Retirement Plan.   Self-Employed Pension Plans (SEP), 401(k), Roth 401(k) are all available to you as a business owner.  Again certain limitations apply.

Talk with me or your accountant about these 6 steps and see how many you can apply as soon as possible to reduce any future tax liability.

As usual, if I can help, please feel free to email me or give me a call.

 

 

 

 

 

 

 

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Taxes may be due on Your Foreclosure or Short Sale!

One of my good realtor (Keith) clients pointed out to me that the Mortgage Debt Relief Act  of 2007 had not been renewed for 2014.   A provision in the act protected homeowners from having to pay taxes on the Cancellation of Debt (1099-C) for their primary residence if their home was sold via a short sale or foreclosure. 

If a homeowner can’t prove insolvency (they owe more than they own), or they can’t qualify for a Title 11 Bankruptcy prior to the home being sold, they’ll have to pay taxes on the cancellation of debt.   This could result in thousands of dollars in taxes coming due.

The Mortgage Relief Act could get extended by Congress before the year is out, but nothing is guaranteed.  Be sure you and your clients fully understand the ramifications of foreclosure or a short sale by talking with an accountant or tax planner.

If I can be of service, please feel free to give me a call.

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5 Steps to Take Now to Reduce Your Future Tax Liabilities!

Having just completed the 2014 Tax Season (other than extensions), here are 5 insights I gained that will help you reduce your future income tax liabilities or increase your future refunds.

  1. Reduce your federal and state tax exemptions.   Too many of you had your exemptions set too high and as a result ended up owing taxes.   My suggestion is to “guesstimate” with your tax planner what your tax bill will be in 2015 and set your exemptions accordingly.   Don’t play the game of adjusting the exemptions for a few months to get more money during the year and then adjust the exemptions again before the year is out.   Most people never remember to change  the exemptions back or they get accustomed to having the additional money on their paychecks.
  2. Increase Pre-Tax Savings.   A great way to reduce your tax liability without sending the money to the IRS is to increase your pre-tax savings through your 401K, 403B, or Thrift Savings Plan.  For 2014 you can put away as much as $17,500 (more if you are over 50) and thereby, reduce your taxable income.  You don’t have to put the full amount in but do put something away.
  3. Use Other Pre-Tax Benefit Programs.   Your company most likely offers Health Savings Accounts, Cafeteria Plans, Childcare Benefit, etc., as part of its benefit package.   Many of these are Pre-Tax like the savings programs and will reduce your taxable income as well.
  4. Track Unreimbursed Business Expenses.   Your job may require that you spend money “out of pocket” that you may not get reimbursed for.   These might include union or professional dues, continuing education, business use of home,  overnight travel or auto expenses.   If you can itemize your other deductions, you can file Form 2106 for the Unreimbursed Business Expenses.  Another option is to negotiate a business expense reimbursement deal with your employer.
  5. Use Checks or Debit/Credit Cards not cash.   Both cash and receipts get away from us too easily.  Use a check or your debit or credit card to pay for your expenses such as cash contributions,  business meetings (meals), gas,  and other deductible expenses.   You’ll be able to track these expenses on your bank and credit card statements so you can claim them for your taxes.   (Print your bank statements each month and attach your monthly receipts to it – its a good way of having your record available when needed.)

Hopefully, you’ll find these 5 steps helpful and find yourself on the way to paying the IRS less next year.

As usually, if you can any questions, feel free to give me a call.

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Year End Marketing! Time to Get It in Gear!

Year End Marketing! Time to Get It In Gear!

Get Your Marketing In Gear for the Last Third of the Year. You see, who’s gonna buy if you don’t tell them what and why.  So work to get your customers in line cause its your time to shine!

Here are 18 Opportunities to Market Your Business Between Now and the New Year!

  • September Birthdays
  • Labor Day
  • Back to School
  • End of Summer
  • Beginning of Fall
  • October Birthdays
  • Columbus Day (Discover Your ?)
  • Halloween (Have a Scary Good  ?)
  • November Birthdays
  • Veteran’s Day
  • Thanksgiving
  • Black Friday (Day after Thanksgiving Sales)
  • December Birthdays
  • End of Fall
  • Beginning of Winter
  • Christmas
  • New Year’s
  • Holiday Season (Thanksgiving through New Year Year’s)

What's HotIf you need help developing marketing ideas or products around some these ideas, give me a call at 240-356-5050.   If I can’t personally help you, then I have several product specialists, website designers and printing specialists who can.

Here’s to your financial health!

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Need to Save? 22 Ideas to Help You!

Need to Save Money?  Here How!

According to the U.S. Department of Commerce, Bureau of Economic Analysis, as of December 1, 2012, the Personal Savings Rate in the United States was 6.5%.    This is based on savings as a percentage of Disposable Personal Income or DPI.

DPI is defined as the total amount of money available for an individual or population to spend or save after taxes have been paid.

As we struggle with the economy and the sequestration furloughs,  and look for ways to increase our savings or just maintain what we have, here are a few ideas for you to put into place.

  1. Each night when you come home, empty your pockets and put any change into a jar to save.  You’ll be surprised how quickly it can add up.
  2. Quit smoking and save on average about $6 per pack.  If you smoke 2 packs a week, that’s $624 up in smoke.
  3. Put that lottery ticket money you spend each day into a savings account instead of funding the state.  They tax you enough as it is.
  4. Take your lunch to work.  $10 a day is $50 a week or $2600 a year you could be saving.
  5. Consider a second job or part-time business opportunity.  Use it exclusively for savings goal or paying off debt.
  6. Transfer balances from high interest rate credit cards to lower rate cards.
  7. Instead of paying extra to pay down a lower interest mortgage, instead use the additional to pay 12% to 24% credit card balances.
  8. Save for your purchases instead of using credit cards
  9. Tithing is a great way of budgeting – it forces you to live on the 90%.
  10. Pay Yourself 2nd.   Start off saving at least 5% of your gross income and build from there.
  11. Current practice calls for creating an emergency savings fund equal to 3 to 6 months of your living expenses.
  12. Consider a whole life insurance policy as an alternate savings vehicle.
  13. Comparison shop for your credit cards, home owners insurance, life, auto insurance and home telephone and cellphone services.
  14. Take advantage of payroll deduction plans for retirement and savings accounts.  Payroll deduction is a painless way to save.
  15. Begin putting together a cash flow plan for your family (budget)
  16. Make a weekly or bi-weekly commitment to review the family finances with your spouse.
  17. If you regularly get a tax refund, it means the IRS is getting an interest free loan from you.
  18. Save Your Tax Refund or use it to help pay off any outstanding debts.
  19. Clip those newspaper and sales paper coupons and use them before they expire.  Buy only if you need to not because something’s on sale.
  20. Use Groupon, Living Social and other social media sites as savings resources, too.
  21. Work to improve your credit scores – the higher your scores, the lower your loan interest rates.
  22. Save your next pay increase.

Lastly, be willing to make the hard financial choices and stay the course.  Being debt free and under financial control will relieve much stress and tension from you and your family’s lives.

Need a good “cashflow tool”?  Click here and take a look at the video.  It’ll be worth your time and effort.

If I can help you with these and other financial issues, including tax planning and preparation, business consulting or incorporation services, please feel free to give me a call or visit my website at www.flemingfinancialsolutions.com and schedule an appointment.

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It IS What IT is!

I’ve got to get this off my chest before I Explode!

Here’s Some Healing for Your Soul –
It Is What it IS!

Recognize that right here; right now…It is What it is!

What I mean is accept your life’s circumstances as being what they are.   That’s the current reality.  You are right now where circumstances and decisions have brought you.  Let that sink in for just a moment!

Ok, …that’s long enough.  Now realize I’m only talking about current reality as you see it.  I’m not talking about you being defeated by circumstances.  I’m building a platform for you to launch from where you are to where you want to be.

Your goal and only goal for 2013 and forward should be to make better decisions through better information and prayer; and to act as quickly as possible to move you from where you are to where you want to be – bridging the gap.

This is going to require some letting go and some reaching out.  You’re going to have to let go of some attitudes, some habits, some possessions and some people.  You’re going to have to create some new attitudes and habits, acquire some new possessions and meet some new people.  Every thing you need is out there and the power to get it is within you.

Change is going to be painful.  It’s like a bad tooth.  A filling and a cap may be a solution but sometimes it just has to come out.   A bridge can fill the space and be supported by the other teeth and keep the good teeth in their rightful place. (I don’t know why the tooth analogy but I think it works.)

Do some soul searching – recognize where you are, be angry about it if need be, grieve the situation if need be and then accept that right now…it is what it is.

Now determine to change and go forward – its not going to happen overnight but stay your course.

  • Fully determine where you are – physically, financially emotionally and spiritually
  • Decide on what you really want and need (You may want the Maserati but the little Mazda will get you where you need to go.)
  • Through prayer, reading and wise council decide how you will change your circumstances.
  •   Take an immediate first step.   Don’t just stand there, do something…or stop doing something…whichever applies.
  • Access the damage and the forward progress.  Creation often destroys or disturbs first before progress is made.  (An offensive lineman has to move the defensive lineman out of his way before the running back can make forward progress.  Go ‘Skins….I mean, Ravens….sorry about that!)
  • Keep moving; once you stop, starting again can be difficult.  Stay prayerful and active
  • Keep your eyes on your goal.   Focus on the solution and not the problem.

Yes.     It is What It is….Until It Isn’t!

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