Are you keeping the right records?

When you’re self-employed, the burden of filing taxes as it relates to your job falls on you. Employers are responsible for handling the majority of tax-related expenses. That also means they are eligible for any tax breaks that are available. When you file as a self-employed individual, you are now eligible for any employment-related tax breaks that would have previously gone to your employer. Though these breaks are very different between a small business, large business, and the self-employed, the concept remains the same. If you keep the appropriate records and file correctly, you can receive a number of benefits.

Separating your business and personal expenses.

This is one of the most important steps you can take. You’ll want to make sure business related expenses are kept separate from personal ones. Not only does this make it easier for you to keep track of the flow of funds and leave a definitive paper trail; in the event you are audited it can be invaluable when proving your tax return was filed honestly. One of the easiest ways to do this is to open a separate checking account you only use for business expenses.

What should you save?

The IRS recommends you keep a wide range of personal records. Just some of the recommendations include:

• Income related receipts. These are called gross receipts and include invoices, deposits, and receipt books.
• Business-related purchases. This is where a separate checking account can come in very useful. Self-employed individuals with full-time in-home offices can write off equipment like new computers, printers, and furniture. Manufacturers can write off certain raw materials or parts. Save complete records of any purchase made specifically for your employment.
• Business related expenses. Keep all records related to business expenses. These can differ from purchases because they may include recurring bills or one-off expenses like dinner and all of these documents should show the amount paid and description of the expense.
• Entertainment, Travel, Gifts, Transportation. Certain self-employed individuals can write off meals, entertainment, and even portions of gas and vehicle maintenance and repair-related expenses. You’ll want to keep track of mileage and investigate which additional deductibles you may be eligible for.
• Business-related assets. You’ll want to keep these records in order to calculate depreciation. This is used to determine the gain or loss of the asset in the event it is sold. Assets include furniture, machinery, and other items you use during a regular business day. You’ll want detailed information for these that includes the price of purchase, improvement costs, deductions, how it was used and when, and how much it was sold for.

How long should I keep my tax-related records?

For accepted returns, you’ll want to keep documentation for a minimum of three years. This is the window the IRS has to make assessments and you have to make amendments, and you’ll ensure you’ve got hard copies of the documents you used to file in the event you are audited. If you have neglected to file taxes or improperly filed, you’ll want to keep records of those years indefinitely. There is no statute of limitations when it comes to fraudulent filing whether it was intentional or not.

If you’ve received any business loans or have made any business related expenses on credit you may be required by the agreement to keep your records in excess of three years. Determine how long it is necessary to maintain records before disposing of anything.

For additional help

An accountant can be invaluable for determining write-offs, deductibles, and other money saving measures. They can also collate and file your taxes on your behalf, ensuring you have everything required by the IRS in order to improve your chances of a successful filing. In the event of audit an accounting firm can even receive communications directly, and if they have an Enrolled Agent on staff like LBS Tax, can work directly with the IRS.

When you’re self-employed preparing for tax season is a year-round job. Taking the necessary steps now can save a lot of stress and scramble later—so always save business related documents, organize them accordingly, and put yourself in a great position come tax season.

AZ Tax Credits

People donate far more money than they realize. Charities, tuition programs, schools, private organizations, and even spring cleaning yield opportunities for donation. It’s easy to discount them. Your child’s school fundraiser in September. A cash donation to the state military relief fund in December. Spring garage sale proceeds to the TANF. Individually they may not look like much, but they can really add up in the long run.

Cash donations to schools, private organizations, qualifying charities, and tuition organizations in Arizona can significantly reduce your taxes with credits. It provides two-fold by reducing what you owe Arizona in taxes and giving you an advantage on your federal tax return. A federal reduction only occurs if you itemize your deductions, though, so keep all of your donation receipts in one place.

A Charitable Financial Reward

Let’s look at an example. A married couple with a combined income of $82,600 is filing jointly. They’ve already filed $20,000 in non-charity related Schedule A deductions. We’ll look at what they owe in taxes with and without charity related Itemized Schedule A deductions.

In our example, itemized charity related donations for the couple totaled $1,600 dollars for the year. If you’ll look at the Arizona Credits row you may have noticed that without contributions their credits were 0. With contributions, their credits equaled the amount they donated to charity.

This is because charitable contributions provide Arizona tax credits at a 1 to 1 ratio. Donate a dollar, claim it, and you now have a one dollar tax credit. These can be used at that very same 1 to 1 ratio to reduce the taxes you owe to Arizona. Donate a dollar, claim it, and now you pay one dollar less to Arizona when your taxes are due. Best of all, credits roll over. If you accumulate more than the total dollar amount in taxes you owe the state of Arizona, they will automatically carry over into next year’s taxes.

Since charitable donations reduce the taxes you owe the IRS, our couple was also able to save an additional $240 dollars on their federal taxes as well. There are 4 different tax credit opportunities available to individuals that provide Arizona tax credits.

Available Tax Credits

• Qualifying Charitable Organization (formerly the Temporary Assistance to Needy Families)

  A complete list of applicable charities can help you determine where you would like to donate your money. The maximum contribution for this tax credit is $800 for a married filing/jointly and $400 for a single individual. This is increased from 2015.

• Foster Care Charitable Organization

  Originally wrapped into the QCO, the FCCO is a unique deduction in 2016. The maximum contribution for this tax credit is $400 for a single individual and $800 for a married/filing jointly. View the complete list of applicable foster care charities before claiming this deductible. Itemized deductions are not necessary in order to claim a credit for contributions to a qualifying charitable organization or qualifying foster care charitable organization.

• Military Family Relief Fund Tax Credit ( formerly the Arizona Military Relief Fund)

  The limit for this credit has been reached. This credit helps assist Arizona military families in times of need. It helps families of Arizona service members who are currently deployed, or have been injured or killed while fighting the Global War on Terror, or are facing hardship caused by their deployment. They can receive assistance to ease any financial crisis they may encounter. This fund caps at 1 million dollars and reached its limit in November.

• Arizona Private School Tuition Credit

  Anyone may claim a credit for a donation to a school tuition organization for scholarships to private schools. The maximum contribution for this tax credit is $1070 for a married filing/jointly and $535 for a single individual. If you maximize your contribution an additional credit becomes available. Although you cannot decide to whom the money will go, you can suggest an individual. If they are new to the school they may qualify for a tuition reduction. This can be claimed on Form 323.

  Additionally, if the contributed amount exceeds the maximum that can be claimed on Form 323 a further claim may be made using Form 348. The maximum additional credit that may be claimed by using Form 348 is $525 for an individual filing and $1064 for a married filing/jointly.

• Contributions and fees paid to Arizona Public Schools for extracurricular activities or character education programs and fees paid for testing.

  This is available to filers who paid fees directly to Arizona public or charter schools for the support of extracurricular activities. This includes school sports. As of 2015 it also includes testing fees. The maximum contribution for this tax credit is $400 for a married filing/jointly and $200 for a single individual.

If you add up the maximum potential for tax credits (including the MFRFTC) it comes to a total of $4134 for a married filing/jointly and $2067 for an individual. With the carry over you could easily cover your Arizona state taxes this year and into the next.

If you need help determining your tax deductions, tax planning, or other accounting needs don’t hesitate to schedule an appointment with LBS Tax.

Bankruptcy: What you need to know.

Filing bankruptcy can be an extensive process. There are conditions that must be met during filing in order to do so successfully. Chapter 13 is the most commonly filed bankruptcy type. Without the help of an accountant, it can be easy to make a mistake and have your case dismissed. The following can result in a dismissal of your filing:

• • You fail to file required tax returns for all tax periods within the previous 4 years of your filing.
• • You fail to file returns or receive extensions during your bankruptcy.
• • You fail to pay taxes as they come due throughout your bankruptcy case.

What can I discharge in bankruptcy?

Not all debt qualifies for a discharge during a bankruptcy filing. This is one of the most common mistakes made when people file for bankruptcy without receiving help. Certain conditions have to be met before a debt can be discharged. These conditions include:

• • You are seeking to discharge income taxes.
• • Tax debt was assessed by the IRS at least 240 days prior to filing for bankruptcy.
• • Willful tax evasion and/or fraud was not committed.
• • The tax liability is a minimum of three years old.
• • A tax return was filed for the specified dischargeable years a minimum of two years before filing for bankruptcy.

What tax related debts aren’t dischargeable?

• • Tax related debts due to unfiled tax returns
• • Tax penalties accrued from tax related debt
• • Withholding taxes withheld by an employer from an employee’s paycheck
• • Trust fund taxes
• • Tax liens placed prior to the bankruptcy filing

Know the consequences of filing for bankruptcy.

Bankruptcy can discharge your tax debt, but it can follow you for a very long time. Depending on which chapter of bankruptcy you file for the record of your filing will remain on your credit from between 7 to 10 years. This can have a far-reaching impact on areas you may not have even realized. It can impact your ability to open lines of credit, get hired for certain positions, and can lead to higher interest rates long-term.

What are the alternatives to filing for bankruptcy?

An IRS Payment Plan can be arraigned with the IRS. The first and only goal of the IRS is to collect back taxes. If they believe they are more likely to receive them by working with an individual, they typically will. A bankruptcy filing negatively impacts your credit, but it also eliminates the IRS’s ability to collect all the taxes they may be owed. An Enrolled Agent like Sharon Lewis can work with the IRS on your behalf. This increases our accounting firm’s ability to get results by allowing us to work in person with the IRS collectors working on your case.

An Offer in Compromise can help you both eliminate a portion of your debt and create a payment plan. The IRS looks at a number of different factors when considering a partial discharge and compromise. These include your income, expenses, equity, and ability to pay the specified taxes. An accountant can accurately assess these items and present the IRS with a compromise they are more likely to accept. This makes working with our firm the best way to achieve your desired results.

Visit an accountant before you file for bankruptcy.

Analyzing your options, identifying what will work best for you, and pursuing it in the appropriate manner is best accomplished with the help of an accountant. We can provide that help, and know which documents the IRS will be looking at, requesting, and what figures they will consider. Whether you choose bankruptcy or another path, our enrolled agent and accountants will ensure you know exactly what to expect at each step, and that each step is carried out in full. The IRS doesn’t always give you a second chance, so let us help you correctly navigate the process the first time.

IRS Payments

If you owed money in back taxes, you may have agreed upon payment terms with the IRS. This frequently comes in the form of installment agreements. These may be reasonable at first, but finances can change very quickly. Major life events like a job loss, medical problems, or more can turn a previously agreeable payment into an unreasonable financial liability. The last thing you want to do is default without a plan. If you believe you soon won’t be able to, or are already struggling to make payments to the IRS, you want help from an accountant. They can go over your options with you, and Enrolled Agents can actually represent you before the IRS. Some of the options you may have available.

Do you know your options during repayment?

• Contact the IRS – A qualified accountant can contact the IRS on your behalf. The IRS will typically grant short-term requests. If you need an extension lasting longer than a month, you may need to do more than make a phone call. Greater extensions often require hard proof of the hardship itself. That means copies of medical bills, home repair bills, etc. depending on the nature of the hardship. An accountant can make sure you have all the necessary documentation the IRS requires and that it is presented and formatted in a way that makes the job of the IRS easier.
• Permanent Payment Plan Reductions – Depending on how much you are currently paying, it may be possible to have the plan reduced or rendered uncollectible. An accountant will be able to analyze your finances and determine your best options. This will likely involve looking at whether or not reduced payments are even feasible. Plans are typically reduced when financial situations change dramatically enough to affect your current situation. These may include rent hikes, income reductions, unemployment, medical expenses, and more. If your payment plan is putting you into economic hardship there are some additional options that may become available.
• Offers in Compromise – An offer in compromise can reduce your overall owed amount. Since the goal of the IRS is to collect back taxes, this becomes a more desirable option for them when the other options include rendering the debt uncollectible or someone is considering filing bankruptcy to excuse the debt altogether.
• Filing for Bankruptcy – Since this can have long-lasting consequences it should be carefully considered beforehand. Filing bankruptcy is one way to absolve yourself of a debt in its entirety. It’s important to get the help of an expert though. Determining what and what you cannot write-off before filing is crucial, and mistakes made by a non-professional can be incredibly costly.
• Wait (But contact an accountant first.) Sometimes those in repayment want to get some more time to consider their options. The IRS must follow specific procedures. In the event you do not pay your monthly installment, the IRS will send a Notice of Intent to Terminate your Installment Agreement. From the day you receive it you have 60 days to file an appeal. No actions will be taken by the IRS during those 60 days, and after you file an appeal further enforcement will not occur. This can provide additional time, but must be performed correctly in order to be beneficial.

Know your Options.

The worst option is none at all, and that’s what you get when you don’t know what yours are. Now that you understand the inability to make a payment doesn’t come without choices, you can make the right one for yourself. For more information contact LBS to determine your options.

What is a tax levy?

A tax levy is instituted when the IRS is trying to satisfy a tax related debt. They have the authority to seize your property in order to satisfy that debt. The IRS is required to follow a set number of steps before they can issue a levy. This includes multiple notices. The three steps are:

1. A Notice and Demand for Payment following an assessment of your taxes by the IRS
2. You have openly refused, or neglected to pay taxes
3. The IRS has issued you a Final Notice of Intent to Levy in addition to your Notice of Your Right to a Hearing. This must be done at least 30 days before a levy is issued, but it can be performed in a variety of ways. Notices may be delivered to a work place, home, last known address, or in person.

What are the goals of the IRS?

The IRS is only interested in one thing, the collection of taxes. As a government entity it isn’t entirely impartial though. The IRS is willing to work with United States citizens, but they will not be the ones to take the initiative. In order to lift your levy, you must take action. There are several ways to do this, but time is severely limited. The earlier you act the more options you have.

How to Lift a Tax Levy

Pay your owed taxes in full: When you don’t pay your taxes the IRS may charge interest and associated penalties. If you have a way to pay this amount back in full you can avoid a levy. This may mean selling assets, taking a loan out, refinancing your home, or borrowing the money, but if your methods seem reasonable an IRS collector may even stop collections in order to allow you the time to acquire the money.

Create an Installment Agreement: As long as your owed amount is under $25,000 the IRS will work with you to create an installment agreement. Once this is fully in place any levies will typically be lifted.

Prove financial hardship: As we said before, the only goal of the IRS is to collect taxes. If an undue financial hardship would keep that collection from occurring, the IRS may release a levy. This typically must be an extreme situation as “hardship” is not clearly defined. Trouble feeding yourself or family, or affording lodgings, and similar hardships may qualify.

Offers in Compromise: These will halt collections until a decision is made by the IRS on your offer. An accepted offer will require payment of the stated amount and release the levy. A rejected offer will resume the collections process.

Create a Partial Payment Agreement: Partial payments are similar to installments, but allow you to make smaller payments. This may also reduce the total amount that is owed as well. You must prove that a standard Installment Agreement is an impossibility, and that this is the best opportunity for the IRS to collect taxes owed.

Seek the Services of An Accountant

The above options are simply the most commonly pursued. Other options include proving your assets have no equity, waiting for the 10 year statute of limitations to expire, appealing the levy, or filing for bankruptcy. Depending on your financial situation and the amount owed, some options are better than others. A tax accountant can help you determine which option the IRS is most likely to accept, and an Enrolled Agent can actually represent you before the IRS. When deadlines are so crucial it’s also important for documents to be filled out correctly and returned on time. This makes an accountant invaluable if you are facing a possible levy.

Tax Levies

If you owe back taxes, the IRS can use a levy in order to seize your property in order to satisfy a tax related debt. These do not require permission from the courts, and may be carried out by any means necessary. Levies may result in wage garnishment, seizure of money from financial accounts, and the seize and sale of real estate, vehicles, and other personal items. Finding out that you are being levied by the IRS can be emotionally and physically stressful, but it is crucial to act immediately if you hope to have a levy lifted.

Levy Notification

When you receive a notice from the IRS, it is important to read it in full. If you are unsure of the nature of a notice, an accountant with LBS Tax can aid you in identification and help you to determine your next course of action.

• Small business owners – Receive 5 notices in total. These are comprised of 4 standard notices and 1 final notice.
• Individuals – Receive 4 notices in total. These are comprised of 3 standard notices and 1 final notice.

Your final levy notice is your last chance to act.

The final warning given by the IRS regarding a tax levy will be a bill titled “Final Notice of Intent to Levy and Notice of Your Right to A Hearing.” This will have a date on it, and you will have exactly 30 days from the Final Notice of Intent to Levy to file a Form 12153 and have it received by the IRS. You do not have 30 days to file. The IRS must receive your Form 12153 within 30 days of the specified date on your final notice.

Prevent a Levy with a Request for a Collection Due Process

By filing a Request for a Collection Due Process or Equivalent Hearing (Form 12153) you can preserve your right to go to court. You must make sure to check box 7 on the form and there must be a reason supplied for your disagreeing with the levy.

An Enrolled Agent can represent you before the IRS.

Our accountants can look at your finances and identify your best options. Our company president, Sharon A. Lewis, is also an Enrolled Agent. She can represent you before the IRS. After a request for a collection due process you will have the time to discuss options with the Collection office that sent your notice. If a compromise can be reached or the levy has been assigned in error, a hearing may not be required.

Collections Appeals

The Collection Appeals Program is available even after a seizure.

If a hearing is required it will go through the Office of Appeals. This may occur over the phone, via physical or electronic letter, or in person. An Enrolled Agent can represent you during your Appeals hearing. The collection appeals program is used for a number of reasons including agreement terminations, rejections, and modifications. It does not guarantee the IRS will act according to the wishes of the individual, but does provide the opportunity to appeal either before or after a notice, levy, or seizure.

An accountant can make all the difference.

Depending on where you are in the levy process, certain options will be available to you. We know every step of this process including obligations the IRS has to you and when and how you can respond. Taking advantage of every step in the process is the best way to prevent a levy, and ensure you have the greatest opportunity to prove it was wrongfully made or present a payment alternative that is more favorable for you than seizure of your assets.

If you’ve received a levy notification or your property has already been seized, call (480) 664-1249 or Contact Us today. You have options, and we can help you put them to use.