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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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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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IRS Delays Open of Filing Season!

Though we got past the tax portion of the Fiscal Cliff, it wasn’t without problems. The IRS announced that it won’t begin accepting tax returns for most filers until January 30, 2013 and for some select filers until February or March. See the letter from the IRS below –

http://www.irs.gov/uac/Newsroom/IRS-Plans-Jan.-30-Tax-Season-Opening-For-1040-Filers

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30th Anniversary Offer – Celebrate With Me!

It’s my 30th Anniversary in Business and I want to share it with you!

It’s hard to believe but I have been involved in some form of business ownership since 1982.

I began with one bookkeeping client on a Digital VAX machine running one of the first computerized accounting packages. That evolved into tax preparation. I later added life and health insurance and basic financial planning. I’ve dabbled in mortgage loan origination and helped many companies with their sales and marketing. Its been a fun ride and I still have some hair left after wearing some many different hats.

So, as I said, I’m celebrating my 30th Anniversary and didn’t want to do it alone. I’ve decided to make some special offers to you to celebrate with me and to give you a “jumpstart” for the new year.

Here’s what I’ve got –

Business Plan – If you need a business plan, you can save $450 by celebrating with me. I’ll create your complete business plan including SWOT analysis and financials and consultations with me and other resources as needed. The usual fee for this is $1,500 – your invest is $1,050.

Call re:  Payment plan for this offer!

CLICK HERE for Business Plan

Incorporation Services -You’ve been putting off properly setting up your business. Well, now is the time to do it right. Whether you need an LLC, Partnership, S Corporation or C Corporation, lets get it done for the new year.

I’ll create the necessary Articles, get your Sales and Use Tax number (if needed), your Federal Employer ID Number and provide at least one hour of consulting to be sure we get it right. Oh, and also I’ll be your resident agent (in Maryland) and get you a corporate seal to boot and get you done in 2 weeks. (Try that with my competitors and see what happens!)

You’ll save $150 off of the usual $500 fee – Your investment only $350.00. (Investment does not include the state filing fees)

CLICK HERE for Incorporation Services

501(c)3 Application Assistance– You’ve always wanted to be a servant and help those in need. You have a passion to help but didn’t have a vehicle to do so. You thought that setting up a 501(c)3 organization was both confusing and expensive.

Well, now is the time to act.

I will walk you through every bit of the 1023 application to make the process easy. I’ll help you with the Narrative, the Financials, Conflict of Interest and any other sections that might be a stumbling block.

You would normally invest $600 for this service; celebrate my anniversary and you’ll save $180. Your invest – $420 (Does not include state incorporation fees or the IRS application fee)

CLICK HERE for 501(c)3 Assistance

Incorporation and 501(c)3 Combination – If you need to complete both the incorporation and the 501(c)3 application process, click below to get the combination offering

CLICK HERE for Combination Services

Deadline has been extended to January 5, 2013. (Services can be provided throughout 2013 as needed)

So act now! Celebrate my anniversary and celebrate your dreams.

P.S. – Offer is not available for projects already started!

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Getting Married? Financial Questions to Ask Before You “Tie the Knot”!

Whether you are married, engaged or thinking about, here are some “tough love” questions to ask before and after!
 

  1. How much income do you make?
  2. How much do you have in savings?
  3. How much have you saved for retirement?
  4. How much debt do you have?
  5. Do you have a plan to pay off your debt?
  6. My debts and your debts – will we pay them all off together or will we be responsible for our individual debts as well as what ever we create together?
  7. Will we have combined checking and savings accounts or separate accounts?
  8. What are your credit scores?
  9. Do you have life insurance, health insurance or disability insurance?
  10. When will the beneficiary be changed to the new spouse?
  11. Do you want children?
  12. If so, daycare or 1 parent will stay at home?
  13. Will we homeschool, public school or private school?
  14. Will we save for their college and/or let them pursue grants, scholarships or loans?
  15. Do you owe child support and if so, how much and for how much longer?
  16. Are all your tax returns filed?
  17. Do you owe Federal and/or State “back” taxes? If so, how much on each?
  18. If you owe, are you paying on them now?

I’m sure that the answers you’ll get will generate more “lively” discussions.

Feel free to responsibly comment! To Your Financial Health!

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Healthcare Reform Upheld – What It Means for You!

By now of course you’ve heard that the U.S. Supreme Court has upheld the key provisions of the Affordable Care Act, or “Obamacare.” In an unexpected twist, the Court ruled that the controversial individual mandate is constitutional, but under the government’s power to tax, rather than to regulate commerce.

We don’t need to go into the details of the ruling itself — just turn on your television, and somewhere, somebody is opining on it right now! But we do want to remind you the Court’s decision means several new taxes will go into effect as scheduled:

    • On January 1, 2013, the Medicare tax will go up by 0.9% for individuals earning over $200,000 ($250,000 for joint filers, $125,000 for married individuals filing separately).

    • Also on January 1, there will be a new “Unearned Income Medicare Contribution” of 3.8% on investment income, for those earning more than $200,000 ($250,000 for joint filers).

    • Beginning on January 1, 2014, there will be a new $2,500 limit on tax-free contributions to flexible spending accounts, and employers with more than 50 employees will face a penalty of $2,000 per employee for not offering health insurance to full-time employees.

    • Finally, the threshold for deducting medical and dental expenses rises from 7.5% of adjusted gross income to 10%. This will make these expenses even harder to deduct without help from advanced strategies like Health Savings Accounts or Medical Expense Reimbursement Plans.

So, while the constitutional issues may be settled, several planning challenges certainly remain. We’ll be following developments carefully in order to help you navigate these new challenges. If you have any questions, don’t hesitate to call us at 240-356-5050.

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Give Yourself A Raise!

Try this exercise – multiply $15 x 5, then multiple that answer by 50.   Your total should be $3,750.00.

This is non-taxable money that can be put back into your family budget just by making a different decision.   How’d you like to have that much back in your budget?

George and Vanessa (not their real names) recently came to see me regarding their finances.  They were not happy.   It seems that in goiing over their finances, they should have more money saved  than they do.

In reviewing their budget, it seem that, yes, they should have more  money available to save.  So I decided to play “detective” and question them on their daily habits.  Guess what I found out!

George and Vanessa were spending money on groceries and then also buying breakfast and lunch while at work. On average they were each spending almost $15 day.  That’s $150 a week!  Even if they took a two week vacation, the additional spending would amount to $7,500.  That’s $7,500 that could be invested, be used to pay off or down debts, create a college fund, you name it!

As you can imagine, they were both shocked.  In fact they had thought it insignificant and had not even considered it as part of their budgeting.  They had a decision to make – stay the course or change their habits.

George and Vanessa decided to cut back extremely on their breakfast and lunch spending and begin to buy groceries that they could take for breakfast and lunch or took take “left-overs” from the previous night’s dinner.  This will probably save them $7,000 a year.  It’s like getting a raise without getting a raise.

(Of course, the food vendors will not be happy – you can’t please everybody.)

So take a look at your food and meals budgets and see if you can save, too.  Who would you rather have the money – your family or the food vendor?

To Your Financial Health,

If I can help you with your tax planning,  tax preparation, bookkeeping or marketing plans, give me a call.  I’d love to hear from you.

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Get Debt Free!

$1 Trillion
Via: Credit Score

How’d you like to be debt free in 1/2 to 1/3 the time without spending any more money than you currently spend? Just complete the form below and you’ll receive an email with more information.

To Your Financial Health!


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Clergy Tax Facts – Housing Allowance

As a “qualified” minister, you are eligible to receive lodging from the church free of income tax liability. This is known as the Housing Allowance. A housing allowance may be provided for a minister living in employer-provided housing or in minister provided housing (owned or rented). This is a key component of your income tax preparation.

To be qualified and eligible, you must meet 5 IRS tests –

  • Be licensed, ordained or commissioned by the church,
  • Administer sacrements – serving communion, baptizing, dedicating infants, performing marriages and funeral services,
  • Conduct religious worship,
  • Be considered a religious leader by your church or parent denomination, and
  • Have management responsibility in the control, conduct or maintenance of your local church or parent denomination.

Every qualified minister should have a portion of salary designated as a housing allowance. This provides an opportunity to exclude dollars from gross income and save on your income taxes.

Typically, the Housing Allowance cannot exceed the fair rental value of the housing including furnishings plus utilities. Any allowance in excess of these guidelines is considered taxable income.

Allowable Housing expenses include:

utilities,
principal and interest payments,
down payment on house purchase,
real estate ommission,
real property taxes,
homeowner’s insurance,
structural maintenance and repairs,
landscaping, gardening, pest control, home association or condo fees,
furnishings, decoration and local telephone expense.

The qualifying minister should submit a housing related expense estimate to the church for the coming year and the church should adopt a written designation for the housing allowance and include the designation in the church minutes or resolutions.

This is just an overview of the issues regarding the Housing Allowance.

Please discuss this in more detail with your board or your church accountant or feel free to give me a call at 240-356-5050

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