CNN lists 6 new small business tax breaks

At JK Harris, we have a lot of small business clients who come to us for either back tax help through our tax resolution services or for bookkeeping services through JK Harris Small Business Services. And, since our company is technically considered a small business, we always keep an eye out for small business owners and their needs.

CNN Money ran an article a few weeks ago which talks about six new breaks for small business owners.

Own a business? 6 new tax breaks by Catherine Clifford

Doing your taxes stinks, right? No fun at all. But take note as you brace for your 2010 return: A handful of changes in the tax code could translate into a fatter refund check.

The Small Business Jobs Act, passed last September, and the historic health care reform law, passed in March, enacted hefty credits and deductions for capital investments and employee health insurance costs.

Here is a rundown of six new credits and deductions likely to affect the most small business owners. Read the rest of the article here.

JK Harris helps end back tax debt for client in Tennessee

Recently a client from Tennessee came to us with a burden she could no longer bear. She and her former spouse had taken out a distribution from their life insurance policy to help pay their living expenses. What they didn’t realize was that one move bumped them up into a higher tax bracket. This in turn triggered a tax liability for the year that they were unable to pay.

Our client tried making arrangements with the IRS and set up an installment payment plan. She tried to repay her debt in full, but she just didn’t make enough money. Now a single mom, she didn’t have the means to repay the tax debt she had incurred. Then, she came to JK Harris.

Our tax team analyzed her financial situation and determined she was a candidate for an Offer in Compromise. We prepared the Offer package and after several months of waiting to hear back from the IRS, when we did – the news was good. Ms. Capps had her offer in compromise accepted at a fraction of what she owed.

“I am very thankful to you,” Ms. Capps said in the letter she wrote to her case specialist.

We were glad to help – and wish you all the best in the future!

Honest Dialogue

by Teresa Rotell, Tax Consultant, JK Harris

This story actually happened about ten years ago, but I share it due to the uniqueness of the client’s situation.

John, 67 years old, came into my office in Ohio. He had come in with his daughter, Sherri, who was in her 40’s. He looked very heartbroken (and so did she) and I could not figure this out since he had just won the lottery the year before…for $300k. It was on a scratch-off ticket of all things. I had never seen this big of a winner…ever! At least not in person. He was upset because he had spent all of his winnings. He had given most of his money away… burying his wife of 44 years, helping his 3 daughters out of debt, and paying off some debt that he and his late wife had incurred.

After doing what most people would (paying oneself out of debt) he found himself in a bad situation with the IRS. His initial taxes were taken out when he received the proceeds from the winning ticket, but he never counted the 300k as ordinary income on his tax return for that year – leaving him with a large tax liability…I don’t recall exactly what his tax debt was, was but it was hefty. Like most, he thought all of the tax was taken out when he received his winnings.

JK Harris was able to settle the debt…for much less than I ever anticipated. I just think this is a great story because this can happen to anyone…not necessarily to win the lottery…but I think any of us can not realize that somethings must be counted as ordinary income. It was an honest mistake on John’s part. I was just glad I was able to help!

Honest Dialogue

by Ike Nobel, JK Harris Tax Consultant

I had a gentleman visit my office few weeks ago who had returned to JK Harris to contract for our tax resolution services. He met with me about a year ago, but at that time, had opted to try to handle his tax problem on his own. Time passed…fast forward to our meeting a few weeks ago. The gentleman returned to my office after having spent much time trying to handle his tax issue with the IRS on his own – until finally , he reached frustrated, he reached his boiling point and realized it was time to revisit with me to get help through JK Harris.

During the appointment, the client presented me 42 letters he recently received from an IRS office in Oklahoma. He also expressed that his recent contact from the IRS included a visit from an IRS agent to his home in New Jersey, letters from an IRS office in Kansas City regarding a defaulted arrangement, phone calls from an IRS office in Seattle, requests to send documents to the IRS in Fresno, California, and additional requests to forward payments to Andover, MA. He felt completely overwhelmed, until he contracted with JK Harris to help him.

Note: Since this client has just recently contracted with JK Harris, we will post the outcome of his case when his case comes to a close.

Part II: I have received a collection notice from the IRS: Is it a federal tax lien or tax levy? What is the difference?

by Bryan Miller, Tax Analyst, JK Harris and Company

Lien

As the definition implies, a lien is simply a claim to property by securing payment of tax debt if that asset is sold or liquidated. In essence, the IRS makes themselves your primary creditor to the attached property (as opposed to your mortgage or loan company). A lien will not harm most taxpayers other than their credit report. A taxpayer with a federal lien may not be able to attain a loan or credit; otherwise, the lien simply resides on their credit report to govern equity in the property. If the property is sold with at a gain, the tax lien is paid in whole or in part from the gain. If the property is upside down, the taxpayer may request a discharge of the lien to accommodate the sale. See Publication 783 for the form and instructions on a lien discharge, and Publication 4235 on addresses to send the request by region. Also, a temporary subordination of the Federal Tax Lien can be utilized if you are trying to refinance or restructure a mortgage. For more information and the form, see Publication 784.

In some professions where personal credit affects the business or ability to conduct business (such as partners in law firms, real estate developers) the lien can actually cause unforeseen harm. This is not intentional, and for these reasons, the IRS will consider releasing a lien either temporarily or permanently on a case by case basis. See Publication 1450 for instructions and state by state phone numbers to accommodate this process. (Note: The correct form for withdrawal of a lien is Form 12277.

Remedy

The only remedies for liens are those as described above. For a levy, the answer is to begin working with the IRS in either compliance or resolution. Compliance involves filing all outstanding tax returns, forms, or information for which the IRS may be requesting. A taxpayer must be compliant before seeking a final resolution. The IRS will only resolve the entire scope of the taxpayers’ liability, not just one year or another.

Resolution involves either establishing an installment payment plan, or providing the IRS 3 months of current financial information for qualification purposes. All resolution programs with the IRS have to be qualified for your unique circumstance to determine the ability to pay the back tax debt, provide proof that the debt cannot currently be paid (hardship cases), or determine that the debt can be paid but not in full. The IRS will require Collections Information Statement Form 433-A (for individuals and self-employed individuals), Form 433-B (For businesses), or Form 433-F (short form of 433-A used primarily by those with little income and assets, retirees, etc.).

Seeking professional assistance in divulging financial information to the Internal Revenue Service is highly recommended. The IRS will look at current income, expenses, assets, equity, access to cash-value holdings, retirement accounts, as well as go though bank transactions and the sales or disposition of assets and equity over the past few years. Knowing how the IRS interprets these documents and transactions to render a conclusion is imperative in working out the best tax resolution the IRS will accept under the Internal Revenue Code.

For more information and research on federal tax lien help please click here. For more information on federal tax levy program click here.

I have received a collection notice from the IRS: Is it a federal tax lien or tax levy? What is the difference?

Part one of a two part series

by Bryan Miller, Tax Analyst, JK Harris and Company

Enforced Collections

If you have received notices from the IRS regarding a federal tax lien or notice of intent to levy, you may be familiar with the feelings of panic and frustration that follow. Many taxpayers may be aware that they have a tax problem, but it is usually at this point that JK Harris attains many of our clients.

Most taxpayers perceive any correspondence from the IRS as negative and of equal merit. Not all correspondence from the IRS is negative. These notices happen to be quite negative correspondence in the form of a collection activity effort, however, they are certainly not of equal merit. Some taxpayers may confuse these notices, or may be somewhat familiar with one and not the other. However, most taxpayers are completely unfamiliar with IRS enforced collection activity and therefore do not know what to do or how to handle the situation.

Sound familiar? Understanding what a tax lien and a tax levy is, what it means to you as a taxpayer, and what these two notices affect in real day-to-day practice is essential to understanding one of the most feared collection tactics of the IRS.

To begin in short order, a levy is much more severe than a lien. For a definition from the IRS web site:

A levy is a legal seizure of your property to satisfy a tax debt…A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

Levy

A levy may take two forms, but the result is the same: 1) a levy may forfeit property in your possession, or 2) forfeit your rights to certain property that is held by others. This forfeited property will be used to pay down or pay off your back tax debt. Property in your possession may include a home, vehicle, boat, or business assets. Property that is rightfully owned by you but held by others includes: wages (often referred to as a wage garnishment), retirement account, certificate of deposit, money market account, bank account, professional licenses rental income, accounts receivables, 1099 income, commissions, and any cash value instruments such as loan value on life insurance.

Scary stuff, no doubt. But from all of the above, the IRS regularly uses some tactics more than others in everyday practice. Unfortunately, businesses are more susceptible to damage than an individual taxpayer. For example, individual taxpayers are much less likely to have a home or vehicle seized than a business owner to have assets seized.

Liquidating certain business assets is not the same as depriving someone of their primary residence. Even so for the business owner in most cases, the IRS would only look to liquidate excess, or non-essential assets that should not impede business operations. Taxpayers’ homes are usually only seized in cases of fraud or criminal activity. In either case, the IRS sees this as a last resort effort for such extreme measures to be taken.

Seizure of rights to property is much more common, the top two being wage garnishments and bank levies. These are not as damaging overall, yet very effective and attention grabbing, which is the point. Important to note here: the IRS notification process, for any reason, is via mail to the last known address; it is deemed a taxpayer’s responsibility to update the IRS with current information. So even if you do not receive the IRS notice by either mishap or misinformation through the mail, you will certainly take notice when money is frozen in your bank account, or your employer advises that the IRS has attached your wages. This can not only be embarrassing, but cause many residual issues on top of the IRS problems as well.

A real problem may arise here again for the business owner. If the IRS attaches account receivables (those who owe you money needed to run your operations), the account will have to pay the IRS in lieu of paying the business. This can particularly be a problem if the IRS attaches a major account of a business with only a few accounts, or a single account. Subcontractors or 1099 employees with a single employer fall into this category. Also, freezing a business bank account is no different to the IRS than a personal bank account until it is proven that the account is needed to run business operations. Even then, the IRS may only issue a partial levy release to pay necessary expenses while they keep the rest.

Tomorrow, part two of Bryan’s blog will discuss what a tax lien is, how to tell it apart from a tax levy and what the remedy for each situation is.

National Taxpayer Advocate releases annual report to Congress

Last week, National Taxpayer Advocate Nina Olson released her annual report to Congress detailing the need for reform within certain parts of the IRS. Again this year, Ms. Olson has listed the need for tax reform as the number one priority for the IRS. She expressed concern over the IRS’ continued use of tax liens and the lack of alternative collections methods.

Ms. Olson’s report stated more than 1.1 million taxpayers had tax liens filed against them by the IRS in Fiscal Year 2010. Tax liens can be financially devastating to a taxpayer since the lien shows up on their credit report and will linger for seven years after the tax liability is paid. Once a taxpayer has a tax lien on their credit report, it can affect their ability to gain housing (owned or rented), employment, and can affect their ability to get affordable loans and insurance.

In the industry, we have seen an increased number of tax liens being filed and Ms. Olson’s report confirmed it. The NTA report states that tax lien filings have increased 550 percent in the past ten years.

You can view the JK Harris official press release on this issue at Expert Click.

Things to keep in mind when choosing a tax preparer

The IRS sent out its list today of what to look for when choosing a tax preparer. Remember, it is important to choose carefully when you decide to have your returns prepared by a professional. JK Harris offers tax preparation in conjunction with our tax representation services, small business services or as a stand alone service.

If you pay someone to prepare your tax return, the IRS urges you to choose that preparer wisely. Taxpayers are legally responsible for what’s on their tax return even if it is prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare your return. Most return preparers are professional, honest and provide excellent service to their clients.

Here are a few points to keep in mind when choosing someone else to prepare your return:

1. Ask if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.New regulations require all paid tax return preparers including attorneys, CPAs and enrolled agents to apply for a Preparer Tax Identification Number — even if they already have one — before preparing any federal tax returns in 2011.

2. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents.

3. Find out about their service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.

4. Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

5. Provide all records and receipts needed to prepare your return. Most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.

6. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

7. Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

8. Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.The preparer must also give you a copy of the return.

Honest Dialogue

By Antonia Martin, Tax Consultant, JK Harris and Company

Some clients just don’t believe that the IRS can and will enforce collections against them if they ignore the collection letters that keep coming in the mail.

I had one client who had not filed tax returns for a dozen years. The IRS had done a Substitute for Return* for several of the years the client did not file. (The IRS will do a Substitute for Return for you if you have not filed your tax returns. Instead of giving you the deductions or credits you may be entitled to, the IRS will file a return single with the least ideal tax situation you want to be in.) The client came to the appointment he set up with me with a letter showing he had a tax liability of $54,000. He also had a garnishment letter from his employer. I showed him on the table that comes with the garnishment notice how much of his income the IRS would “allow” him to keep and how much of this paycheck the IRS was going to intercept each week – this amounted to the client getting $179, and the IRS getting $2000.

He scoffed at me and said there was no way that would happen, that it could not be that bad. He said I was crazy to ask the amount of money we needed to do all of his past due tax returns and to get a levy release on his wages. He left the office disgusted with me and disbelieving the IRS would take that much of his income.

The very next week, he called me in a panic because his employer had garnished his wages exactly as I had informed him they would. He immediately decided to hire JK Harris to help him get all of his tax returns filed and to get the wage levy released.

* Important note about substitute for returns – it is very important for you to go back and file for any years the IRS may have filed SFRs for you. In some cases, our clients have found they owed very little back taxes – in other cases they owed nothing.

Tax resolution blog adds new feature

by Gina Anton, Director of Corporate Communications

Happy 2011! In the spirit of the New Year and a fresh new start, I would like to introduce a new feature on our tax resolution blog – Honest Dialogue: Stories from our Tax Consultants. Honest Dialogue will feature information from our consultants on what the most common tax issues they see are, the most frequently asked questions they get and stories from the field – situations they’ve seen where we have been able to help our clients with their back tax problem.

Our tax consultants are the second person to speak with our clients (second only to speaking with one of our appointment setters for their appointment), before the actual work begins on our clients’ cases. Often, our consultants are counselor, confidante and friend to their clients who have been burdened with their back tax liability for quite some time. Our consultants are very familiar with the tax issues our clients deal with and are familiar with the fear the client faces of the IRS and its tactics.

In the first installment later this week, one of our consultants, Antonia Martin, will tell us what the top five questions about tax resolution she gets from her clients are and how she answers those questions.

If you have a tax question you would like JK Harris to answer, please submit it to us here or via email at jkharris@jkharris.com.

Happy New Year!