Forward Focus

Assisting Small Businesses

taxes

Mar 19

Who Can Help Me with my 2020 Tax Debt?

If you have tax debt and wonder how you’ll manage to pay them in 2021, you’re not alone.

At the end of 2019, there were 25 million taxpayers who also wondered how they’d pay their taxes—even before the pandemic made life more challenging.

On a positive note, the IRS is aware of the situation and has created new procedures to provide relief to taxpayers while helping them meet tax requirements. Here are a few tips:

More Time to Pay 2020 Tax Debt

For taxpayers who can pay but simply need time, there are some nice changes the IRS has made to its normal collection procedures. These include:
• Increase the length of short¬-term payment plans from 120 days to 180 days.
• Allow taxpayers additional time to make payments on an accepted offer in compromise.
• Automatically add certain new tax balances to existing installment agreements for individual and out¬-of-¬business taxpayers instead of defaulting the agreement.
• Allow individual taxpayers assigned to campus collections who owe less than $250,000 to set up installment agreements without providing a financial statement.
• Allow some individual taxpayers who owe less than $250,000 to qualify for an installment agreement without a notice of federal tax lien filed by the IRS.
• Enable qualified taxpayers with existing direct debit installment agreements to use the online payment agreement system to propose lower monthly payments and change their payment due dates.
What do these changes mean and which strategies should you consider when addressing your tax debt? You have some options.

The $250,000 Streamlined Tax Debt Payment Installment Agreement

It’s not a secret. The IRS wants its money as quickly as possible. They’ll seek to have taxpayers liquidate investments and retirement accounts and even tap equity in their home. By utilizing the procedures below, you can avoid that and get into a payment plan to resolve your tax issue.

The IRS has always had a streamlined installment agreement available for qualified taxpayers. Basically, a streamlined installment agreement is an agreement with the IRS to repay the debt within the terms laid out. If the taxpayer qualifies and can meet the terms, the taxpayer won’t have to submit a financial form (Collection Information Statement) and disclose assets and income.

These agreements are beneficial because, aside from avoiding disclosing assets and income, the taxpayer doesn’t need to spend money on a professional to complete the forms and begin negotiating with the IRS. The agreement can be put in place with a simple phone call or by going online and setting it up through the IRS portal.

Streamlined agreements have changed over time. Due to the sheer number of taxpayers the IRS believes will need help due to COVID¬19, they have made these agreements easier than ever.

Tax Debt Relief: Offer in Compromise (OIC) Payments

The IRS OIC program generally allows for two types of offers: a lump-sum offer and a short-term deferred offer. A lump sum offer is one in which the taxpayer agrees to pay the offered amount within five months of the date of acceptance.

A short-term deferred offer, also known as a “periodic payment offer,” has the taxpayer making monthly payments while the offer is pending. They then will pay the balance of the offer in more than six months (but not more than 24 months).

The short-term deferred offer operates the same as a lump sum offer. The exception is the taxpayer must begin making monthly payments and continue making them while the offer is being con¬sidered, just like an installment agreement. Any hardship caused by COVID19 may also be considered to grant additional time.

Strategies to Tackle Tax Debt in 2021
Some strategies can be employed to get the best result for our clients. For instance, assume we have a client who owes $300,000 for 2020. The taxpayer has an IRA with $150,000 and a home with no mortgage worth $450,000. The taxpayer’s income and expenses show an ability to make payments of $5,000 a month. Our client, though, doesn’t want to make payments at that rate because, economically, it would make life a bit rough.

The taxpayer could do the following:
• Call and set up a short-¬term (six month) payment plan to pay the balance. Once that’s set up, they could make six payments of $5,000 each. After the six months, they now owe $270,000.
• Call automated collections, explain they could not raise all the money, but ask for first-time penalty abatement. This would remove 1/2 % a month for eight months (from April 2020 – December 2020) for the failure to pay penalty, or 4%. The reduction of the 4% from the $300,000 would remove approximately $12,000 of accumulated penalty, reducing the liability to $258,000.
• Get a home equity line and use $10,000 from that to reduce the liability below $250,000.
• Create a streamlined installment agreement (below $250,000 over the time remaining on the collection statute, which is approximately 114 months). The monthly payment should be around $2,300 a month, and they won’t have to liquidate their IRA or get stuck paying $5,000 a month for five to six years.
These numbers are rough, but hopefully they demonstrate that you can be creative and combine some of these options to reach a solution that works to your advantage—or is easier to swallow than the IRS’s straight analysis.

Here, we can decrease penalties, use the short¬-term payment plan to buy time and pay down below the $250,000 streamlined cutoff to avoid the disclosures and get into an affordable monthly payment plan.

Each client’s situation is unique. Understanding the rules is the first step to mastering the game, and it’s a game that is interesting, challenging and potentially extremely profitable to those of us who handle IRS representation matters.

If you would like to learn how these strategies could apply to your current situation, please give us a call and we’ll be happy to help. With some planning and guidance, your tax debt could become a lot more manageable. Contact us at 614-802-6950 for more information.

Feb 19

Which Accountant is Right for You: CPA, EA, or Paid Preparer

Tax season is here! If you’re wondering where to turn to get the best service for your tax return and avoid the headaches of doing it yourself, then this article will be the most important message you’ll read today.

There are many professional accounting services that can help you with your taxes, but which one should you choose? How do you know they’re right for you?

First, let’s define the different types of professional accountants: the CPA, the EA, and the Paid Preparer. We’ll take a closer look at each one:

Accountant Professional #1: The Certified Public Accountant (CPA)
A certified public accountant (CPA) is a designation given by the American Institute of Certified Public Accountants (AICPA) to individuals that pass the Uniform CPA Examination and meet the education and experience requirements. The CPA designation helps enforce professional standards in the accounting industry.

Traditionally a CPA was required to have a bachelor’s degree in business administration, finance, or accounting to be able to sit for the exam. Currently the academic requirements to sit for the CPA exam are 150 semester college credits of which 30 of those credits must be in accounting courses and 24 credits in business courses.  Additionally, they must complete approximately 40 hours of continuing education each year and have no fewer than two years of public accounting experience.

CPAs often work within companies and can move into executive positions such as controllers or chief financial officers.

Accountant Professional #2: The Enrolled Agent (EA)
An enrolled agent (EA) is a tax professional authorized by the United States government to represent taxpayers in matters regarding the Internal Revenue Service (IRS). EAs must pass an examination or have sufficient experience as an IRS employee and pass a background check. They are also required to complete approximately 26 hours of continuing education each year.

Enrolled Agents advise, represent, and prepare a tax return for individuals, businesses, and any entities with tax-reporting requirements. An EA’s expertise in the ever-changing world of taxation allows them to effectively represent taxpayers audited by the IRS.

Like CPAs, Enrolled Agents have virtually unlimited practice rights before the IRS, meaning there are no restrictions to the types of tax issues they can handle and the type of taxpayers they can serve.

Enrolled agents are required to prove their proficiency in every aspect of taxes, ethics, and representation. Unlike CPAs and attorneys, the Enrolled Agent specializes in all tax matters whereas the CPAs may specialize in many different areas. An EA is typically significantly lower in cost than a CPA.

Accountant Professional #3: The Paid Preparer
A tax preparer is a professional that is qualified to calculate, file and sign income tax returns on behalf of individuals and businesses. They can also represent the taxpayer during IRS examinations of tax returns. There are various types of job titles these professionals may have, as well as various certifications and educational levels; individuals need to choose which type of tax professional will best suit their situation.

Common businesses that are paid preparers include H&R Block, Liberty Tax, and Jackson Hewitt. Paid preparers receive some training, but their knowledge and experience could be at any level. Many of them do it as a second job and for only four months out of the year. This type of professional may overlook some of the deductions you could receive when preparing your tax return.

Making Your Decision
Regarding which to choose is dependent upon the complexity of your needs and cost. However, for most individuals and small businesses, hiring an EA to address their tax preparation needs is more than adequate and cost-effective.

 

Sep 23

The 411 on Tax Extensions

Girl at Desk

The first time a client hears the suggestion or necessity to file a tax extension, they panic. With that said, if I need information from a client and they aren’t answering their phone, it seems all I need to do is say the word ‘extension’ in a voice mail message, and information magically appears.

Once a procrastinator realizes that filing for an extension gives them 6 additional months to file their tax return, the new deadline becomes much more manageable. The best part about filing an extension is that it is an extremely easy process. An extension is automatically accepted if the information pertaining to the company or individual matches the file information that the IRS has on file.

Here are some important tips in understanding Tax Extensions:

  • Filing for an extension is easy
  • You do not need to sign an extension form for your accountant to file one on your behalf
  • You get 6 additional months to file your return – this is only an extension of time, not payment
  • The most important thing to remember when you are unable to file your tax return on time, is that an extension must be filed by the original due date of the return
  • The taxes are still due on the original due date and an estimate of as much or more than what you’re expecting to pay is required. If you owe additional money on the tax return in October, then there will be penalties and interest charged.
  • The tax deadline for most Business returns (1065, 1120 and 1120S) is extended until 9/15, and the tax deadline for personal returns, including those with Schedule C businesses, is extended until 10/15
  • Many people think that getting an extension makes them more likely to get audited. There is no evidence to indicate that this is true.
  • The most common reasons that audits are performed are failure to file at all, or expenses and income that are out of line with the norm.
  • If you are currently on an extension and need a preparer, we can help you!
  • If you did not file the extension but have unfiled taxes, we can help you!

Call Forward Focus Accounting at 614-802-6950 and speak with one of our team members if you need help figuring out and filing your tax extension.

Dec 01

Welcome to Forward Focus Accounting – Your Small Business Resource

Hi and welcome to Forward Focus Accounting!

When I created this business in 2017, it was the culmination of a series of career and life events. My goal was to use my 25+ years of small business accounting to help clients build the future they have always dreamed of.

We specialize in the customary accounting services such as bookkeeping, accounting, payroll, tax preparation, and IRS representation. In addition, we also offer tools and advice to our clients who have an interest in entrepreneurship. Running a small business can be very rewarding, but also takes a lot of work and knowledge. Did you know:

According to the Small Business Administration:

  • 20% of small businesses fail within their first year
  • 50% of small businesses fail by year 5
  • 70% of small business owners fail by year10

Businesses don’t fail because the owners don’t understand what they are selling, they fail because they don’t know how to run a business. We are here to provide the help you need to succeed and become part of the group that survive and thrive.

Using a concept called  Practice Forward, we provide you with many of the services a small business needs from a team of highly qualified professionals. The difference is that we are each small business owners ourselves. With strategic partnerships between small firms, we can provide you with accounting, finance, investments, legal, and marketing and brand strategy.

As a part of Practice Forward, we have found that many of our clients have fantastic ideas and products, but do not have the time or experience to realize their potential. From a health and beauty line to a construction industry app, to a nail salon, we have helped clients take the necessary steps to becoming the next small business success story. If you have an idea, product, or service that you want to launch, we can help you develop a strategy to win in the marketplace. Please feel free to contact us and set up a meeting.

As tax season is approaching, look to this blog for info and tips to help carry you through. In addition, we encourage feedback from our clients because we always view consulting as a two-way conversation.

Let’s keep moving forward together!