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Unemployment problem, Client Received Benefits and now must Repay

Posted on January 25th, 2012
Categories: Back Taxes, Filing back taxes, General Advice/Discussions, How, Misc, News, Pricing, When & Why to Hire a Professional

I have just recently been hired by a new client. She was downsized in January 2009. She received severance pay until March 2009. In April 2009, she applied for and was granted Unemployment benefits. She received benefits because she had suffered a significant drop in her income; however, she was still working. She went from a management’s salary to a general employee’s wage.

Every week she went online and completed the information the IDWD needed to pay her benefits. She was working and in school while receiving her benefits. She has now completed her degree in nursing and is attempting to find a job as an RN.

June 2011, the client was contacted by an IDWD employee. This government official needed to meet with the taxpayer to go over some issues. The meeting occurred in July 2011. For the meeting the IDWD employee had prepared a spreadsheet. The spreadsheet represented wages that the client had claimed, and wages the employer had reported. The IDWD official claimed that the client’s reported wages do not match the employer’s wages, and the client was asked to make a statement. The IDWD official “coached” the client. The IDWD official told the client what to say in the written statement. The client was told to write a statement that supported the position that a calculation discrepancy existed. The taxpayer submitted information weekly, but the employer’s wages were reported every two weeks. The taxpayer’s statement affirmed what she thought the IDWD official had told her to say. November of 2011, the IDWD issued multiple rulings.

The IDWD issued a ruling for every quarter the client received benefits. At first the penalty started at 25%, then it increased to 50%, the penalties maxed out at 100% of benefits paid. The IDWD has ruled and found the client in violation of Indiana statute and has charged the client nearly $20,000 in penalties. She is also supposed to repay all the benefits that were paid to her. She now owes the Indiana Department of Workforce Development, nearly $39,000.

She cannot discharge this debt in bankruptcy. She is essentially an indentured servant to the State of Indiana. More as this case developes.

5 Tax Things you Should Do Right NOW!

Posted on January 14th, 2012
Categories: Back Taxes, Filing back taxes, General Advice/Discussions, When & Why to Hire a Professional

1 Focus on the mail. What tax documents have arrived? I know that my firm has sent out its 2012 1040 organizers. Look over the organizer and determine what documents should be arriving. Stay organized so that you can timely file, and prepare the most accurate tax return possible. As your tax documents arrive, are they correct? Does your W-2 have all of the items of income and various deductions reported correctly? Any retirement plan distributions, are they coded correctly? Brokerage statements, do they report accurate cost basis?
2 Examine your 2012 pay stub. What deductions have changed? What items of income have changed? Are you saving enough, both into a deferred retirement plan, but also into an HSA?
3 Take a minute and look at your mortgage interest statements. Does the statement have your real estate taxes paid for 2011? What is your interest rate? If your rate is above 4%, should you look into a refinancing option?
4 Use any refund that you are going to receive, use this “extra” money to pay off some debt. Use this “extra” money to help you get into a better financial position. If you are due a refund, check with your employer, do you need to fill out a new W-4, so that you can have your employer withhold a more correct amount of tax?
5 Does your employer offer other group benefits? Can you have your child care expense withheld so that you don’t pay Social Security or Medicare tax on that money?

Schedule your appointment today! We are here Monday – Friday 7:30am-5:30pm and Saturday 7:30am – 12:30pm. We are flexible, do you need an evening appointment, let us know, we will make every effort to accommodate your needs.

IRS Reports 17% of Taxes Owed were Unpaid

Posted on January 7th, 2012
Categories: Back Taxes, Filing back taxes, General Advice/Discussions, News, When & Why to Hire a Professional

There is a Washington Post article that I found this morning. It reports that the IRS has finally calculated how many dollars of taxes they did not collect in 2006.

The report and the data are from 2006. The IRS says this is the most recent data they have. That information is going on 5-6 years old. How do you manage a company that does cannot analyze current data? You cannot, plain and simple. The IRS and Congress are now upset that the underpayment trend is increasing. Don’t you think they should have know that in 2007, at least by 2008?

How can anyone make any reasonable assumptions about the collections pattern at the IRS with 5 year old data? Does anyone remember 2006? I remember 2006, that was the year that I resolved to never take on any more debt, and the debt I had I resolved to pay it off. Thank goodness that I took those fiscal actions, I had about 18 months before the economy collapsed. In those short 18 months, I was able to right my household budget and reduce the monthly overhead by consolidating, reducing interest rates and paying off principle balance.

Back to the IRS article….

Tax rates and the complexity of the tax law, are significant factors in compliance and payment. Many of my clients are just plain scared. They don’t understand the tax law, and they figure the government is out to get them, so the stop filing. Many of my clients do not understand the myriad of tax deductions, credits and rates, so they think they owe so much money, why file?

This is not a political rant, my opinion is just based on experience. If you want to increase both compliance and collections:
1 The IRS must have better processing technology. It takes the IRS 16 weeks to process anything. The IRS employees that I work with, they still access software that was implemented 25 years ago. I am pretty sure that Wal-Mart does not use 25 year old technology. If Wells Fargo, Chase and Bank of America can process several billion transactions daily, the IRS should be able to process transactions in a similar fashion.
2 Get welfare out of the tax code. No more child tax credits and no more Earned Income Credit and no more education credits. No more ideas like the Homebuyer’s credit or the electric car credit, or the energy credits. That stuff is just crony taxation.
3 50%+ of the US taxpayers do not pay any Federal Income Tax. I understand they pay Social Security and Medicare, State and Local taxes, but they have no Federal Tax obligation. If everyone benefits from the government programs and such, shouldn’t everyone have some skin in the game.
4 Corporations like GE, they have to pay more. This is not about the small to mid size companies, this is about huge multi national corporations that hide their profits overseas and employ the best accountants, lawyers and lobbyiers to reduce their tax burden.

You cannot say to a family of 5 who are working everyday to afford the mortgage and send the kids to school, you cannot say to them, “you need to pay more”. You also cannot say, “tax the rich”. Until we get past the large multi national corporations not paying their fair share and the 50% of Americans not paying any Federal Income Tax, until we correct these two inequities, compliance and collections will suffer.

Individual Income Tax Preparation

Posted on January 4th, 2012
Categories: Back Taxes, Filing back taxes, General Advice/Discussions, News, Pricing, Uncategorized, When & Why to Hire a Professional

There is a process to preparing a bunch of individual income tax returns. The first step in the process is to roll all of the firm’s clients into the next tax year. This process took the better part of 3 days. Now that I have every client into the correct year, the second step is to print organizers. Preparing and printing the client organizers is no small task.

The organizer helps the client know what to look for, and organize your income tax preparation. However, the tax law is complicated and many client organizers are 20+ pages long. The larger clients with many more tax issues, their organizer will be 50+ pages long.

Initially, many clients react with profound confusion and some anger. “Why should I pay you to do my tax return, when you sent me this big organizer?” I have heard that question many times. The truth is, you should be excited that your tax preparer can send you such detail regarding your tax filings. An accurate tax return starts with accurate information. The goal of the organizer is to get accurate information back from the client.

Further, because the tax law is so complicated, in order to assist the client, the firm must send out an organizer that captures as much detail as possible. If you are a client, look for your organizer in the mail next week.

Annual Year End Payroll Processing

Posted on January 3rd, 2012
Categories: Uncategorized

Yesterday, I explained how many checks and transactions payroll has required to process my firm’s payroll obligations for one year. Today, I wanted to finalize my firm’s 4th quarter payroll processing and print W-2’s. Here is how that process happened:

First, you have to determine the amount paid for Officer’s Health Insurance. There is a law about the Subchapter S Corporation needing to gross up the officer’s payroll check to account for the cost of the health insurance. I have never understood this law, but it is the law. We as a society believe in group insurance, shouldn’t the tax law promote that as well. Why does an S Corp officer have to gross up his payroll to account for the cost.

Second, you have to determine the amount to recapture for the officer’s use of a company provided vehicle. There are tables and calculations involved in this process. But the essentially what you are attempting to do is reclassify the commuting mileage for a company provided vehicle. The travel to and from work is not deductible; therefore the officer must gross up his W-2 for that income. The firm’s employees are all covered under accountable plans, so their W-2’s do not need altered. Our employees submit their reimbursable expenses to the office manager and she reimburses them under the accountable plan.

All changes must be made, by today. If you are a semi weekly depositor, your payroll deposit needs to be made today, so that the payment will post tomorrow.

Next, do all the changes work. Are the pay items, deduction items and the withholding items all set up and do the numbers report correctly. Do the items and deductions present on the 941, 940, UC-1, WH-1, W-3 & WH-3? Nope, nope, Yep, Yep, nope & nope, looks like I have some work to do. I got all the numbers right and they all present just fine, except the W-3 & WH-3 are screwed up. I will get that fixed, but I thought it was time to write a blog article.

Based on the last couple of days, you should have hired my firm to process your live payroll, why would any small business owner want to put themselves thru this tribulation. Have a Happy New Year, remember, W-2’s and year end processing must be out by January 31, 2012

If you continue to process your company’s live payroll, I bet you are in store for some trouble. Errors on the taxpayer, errors on the government, and just plain math errors, even when your payroll is nearly perfect, it is very complicated.

Payroll Processing, Why would not outsource that function?

Posted on January 2nd, 2012
Categories: General Advice/Discussions, Pricing, Uncategorized, When & Why to Hire a Professional

There are six of us in the firm. 2 owners and 4 employees. We process our own payroll, we are an accounting firm, we should process our own payroll. But let’s examine that function and process of business.

We pay bi-weekly. 26 payrolls per year.

For the 26 payrolls for tax year 2011, processing of the firm’s payroll required 186 checks. We print our paychecks. I think it is important for a professional in a small business to print paper checks. I don’t always believe in direct deposit. I think that employees should receive an actual paycheck signed by the owner of the company. I guess I am just old fashioned that way.

186 checks does not count the 26 EFTPS 941 deposits, or the 4 940 deposits. The 186 checks does not include the check for the health insurance, we pay for the health insurance monthly.

The 186 check count does include, the monthly tax checks and coupons to the Indiana Department of Revenue, and the quarterly UC-1 filings and checks for the Indiana Department of Workforce Development. Don’t forget to pay the SIMPLE retirement plan, but the 186 checks includes these payments.

186 checks and all of those forms, why would any small business owner do that to himself/herself? I cannot conceive of a business owner that willingly puts himself/herself thru that, outsource payroll. Hire someone outside of your office to handle that administrative function. Hire an outside company to handle your payroll processing. You should eliminate penalties, errors in filings and the removal of a huge administrative burden. The rate for my firm to use my firm to process payroll would have cost me about $1500 per year. That price is a fantastic deal, one you should consider.

Tax Season Starts Today! Income Tax Preparation

Posted on January 2nd, 2012
Categories: Back Taxes, Filing back taxes, General Advice/Discussions, How, Pricing, When & Why to Hire a Professional

Tax Season starts today. That means that soon, you will be receiving your W-2’s and tax documents in the mail. If you are currently a client, we will mail you a client organizer that will help you keep everything straight. Once you have your tax papers, get into my office so that we can help with your income tax preparation. You don’t need an appointment, just drop in. If you want to have an appointment and discuss your situation in person, great, anyone in the office can schedule an appointment. All you need to do is call and let whomever answers the phone, let them schedule you an appointment.

If you are thinking about preparing your own taxes, I would advise against that. Taxes are increasingly complicated, and the costs of a mistake are in excess of what you can save. In other words, say you are a do it your selfer, and you miss a deduction, like the excise taxes that you pay. The additional tax that you pay as a result of that single error would pay for my services. What if you improperly claim a deduction? The cost of an improper deduction may be additional taxes, penalties, interest and the cost of amending the return that claimed the improper deduction. If I have not given you reason enough not to prepare your own returns, self prepared returns are examined (AUDITED) more frequently than the returns prepared by a competent professional.

The risk of leaving deductions on the table, taking deductions that you are NOT entitled to, or the additional risk of being audited are 3 fantastic reasons that you should choose to have your returns prepared by a professional tax preparer here at Tax Matters Solutions.

Client Referral Program

Posted on December 30th, 2011
Categories: Back Taxes, Filing back taxes, Misc, News, Pricing, When & Why to Hire a Professional

Tax Matters Solutions, LLC is pleased to announce its client referral program. If you are a client, or become a client, you are invited to participate. We give you the $25 for any referrals you send our way. This is real simple. When you become a client, you will receive cards, fill out your information on the back of the card, when the person you refer comes to the firm, they give us the card, we send you a check for $25. Easy! Who can’t use $25? Thanks for your confidence in the firm, we look forward to printing you checks.

IRC 6699 Penalty, Corporation Assessed Penalty for Failing to Timely File Corporation Tax Return

Posted on December 29th, 2011
Categories: Back Taxes, Filing back taxes, General Advice/Discussions, News, Uncategorized, When & Why to Hire a Professional

I represent a corporation that has been assessed a penalty under IRC 6699. Essentially, the IRS charges a penalty to a corporation if the corporation does not timely file an income tax return.

The IRS charges $195 per month per shareholder for not to exceed 12 months. So if you have 2 shareholders of a corporation and the corporation fails to timely file its corporate income tax return for 5 months, the penalty would be $1950 (2 shareholders X $195) X 5 Months Late = $1950.
However, my client timely filed Form 7004. Form 7004 is the Form required for the IRS to grant an automatic extension of time to file. The IRS does not grant an extension for payment, the IRS only grants an extension for time to file.

Form 7004 grants an automatic 6 month extension. Therefore, in the example above, if the corporation had timely filed Form 7004, there would have been no penalty charged.

The facts of my client’s case are as such. The client timely filed Form 7004, but did not file the corporation’s income tax return until November 15th. The IRS assessed the penalty under IRC 6699 from the original due date of the return. IRC 6699 clearly states, “with regard to any extension of time for filing”; therefore, the IRS has inappropriately applied IRC 6699.
I have filed an appeal with the IRS and I am awaiting their ruling. I will update the blog with the outcome of the case.

Man gets 4.5 years for tax evasion

Posted on December 20th, 2011
Categories: Back Taxes, Filing back taxes, News, When & Why to Hire a Professional

Charles Irby, 46, of Laurel, MS will serve 54 months in federal prison for tax evasion convictions on six separate counts. Irby was also ordered to pay $1.06 million in restitution to the IRS and a $15,000 fine in addition to serving eight years of post-supervision release. Irby was convicted by a jury in August and will serve time for four separate counts of failing to file a tax return, one count of obstruction of administration of tax laws and one count of evading “through acts designed to conceal.”

Irby entered the U.S. District Courthouse in Hattiesburg, MS in leg irons and wearing an inmate jumpsuit. He carried two large trash bags stuffed with documents to his sentencing then fired his attorney, public defender John Weber, in open court less than five minutes into the hearing. Irby argued with U. S. District Judge Keith Starrett, raising dozens of objections to his pre-sentencing investigation report, stretching the hearing to last all day. Irby asserted that tax laws are written properly but incorrectly applied by the IRS.
“Me as a living, breathing man – no, they do not apply,” Irby declared in court. The Judge did not agree.

Mr. Irby is a protestor. He feels the need to protest the government’s actions regarding taxes. Whether it is the actual tax law, the application of his personal belief, Mr. Irby is not participating in taxes the way the rest of the country does. Mr. Irby is sacrificing a million dollars, and 54 months of his life for his protest. That seems to me a steep price. I am not faulting the government, Mr. Irby’s actions cannot continue. I don’t understand Mr. Irby’s actions. There would have been a point where Mr. Irby’s case could have deescalated, but that is not the path that Mr. Irby chose.