Confessions of a Mad Tax Accountant #2: Dealing With Bum Clients

 

"Every client you keep, is one less that you need to find."  -Nigel Sanders

 

I agree with Mr. Sanders' quote but only to a certain point. Some clients are just not worth the headache.

My parents taught me that "hate" is a strong word. I  rarely use the word "hate" because hating is bad for your health. Therefore, when I say that I hate bum clients, it's a real feeling. Luckily, most of the clients that I dealt with in the past and present are great individuals. However, it is always that rare one percent of clients that were bums. As an entrepreneur, there is nothing worst than dealing with a disrespectful clients. These bum clients can ruin a nice summer day. I will only give "bum" clients two chances to prove that I should keep them as clients. In some cases, two chances may be too much. Here are some reasons a "bum" client won't make it to the second chance:

1. I can't keep clients that wanted everything done yesterday but you have to chase them down for your fees. I have no problem dealing with urgent situations but it is so disrespectful when the client decides to disappear when it is time to pay. All of sudden, your calls are not being returned like you are a ex-boyfriend!
2. I can't keep clients that want a deep discount but you have to do double the amount of work. Even worse, they won't even give you referrals for your great service! I have performed deep discount services and almost always get burnt in the end. I don't know how I always fall for it. The clients comes to me very humble and appreciative. However when the work is done, it is almost like they forget how I helped them in a tight situation. Some bum clients even try to repeat the same action like nothing happened in the past. This can only happen to me once then it is "good bye!"
3. I can't keep clients that think taxes are easy. These clients come into your office with an arrogant attitude. It is almost like they think that they are doing you a favor by coming to your office. Telling me that "taxes are easy" is a big slap in my face and my fellow tax professionals. I will not allow someone to disrespect my profession. If taxes are so easy then the client should save their money and complete their own taxes.
4. I can't keep clients that will disregard the law because their friend got away with the proposed scam. These type of clients will only help you lose your professional license. When they get into trouble, they will blame everything on you. Don't fall victim to these bum clients.
5. I can't keep clients that get mad at me for owing the government money. It is not my fault that they withheld too little taxes from their paycheck. I'm not dumb, most of these type of clients know exactly why they owe money. How can you claim six exemptions on your paycheck when you are single with no kids?

There is nothing wrong with firing bum clients. Life is too and complex to deal with them! Firing bum clients will give you more time to concentrate on your valuable clients.

 

Great article on how to fire bad clients: http://sixrevisions.com/project-management/how-to-fire-bad-clients/

 

Next confession: Dealing with the IRS

 

 Visit the new and improved Tax Factor blog: www.thetaxfactor.com

Reasons Why You Should Love Enrolled Agents: Patrick W. O’Hara, EA

 

Just in case you didn't know (and I will keep reminding you).... Enrolled agents (EAs) are America's Tax Experts. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS.

Let’s show how passionate Enrolled Agents can be. You want passion? I can't hear you. Ok, I give you passion!

 

Patrick W. O’Hara, EA thought you might want to read this:

 

The value of today’s tax professional

 

The work of the income tax professional has changed significantly from when I first started 22 years ago. My first year marked the major transition from preparing returns by hand to using computer software. The returns were printed out neatly, and mailed to the IRS. Then came electronic filing, the revenue anticipation loan, the growth of home-use return preparation software packages, and today, the push for the paperless office.

 

Should we ask ourselves though, has this technology helped us understand taxation? Or has it dumbed us down in a way? I raise this question specifically because this past filing season, America’s most popular (cloud-based) tax software didn’t even resemble a form. It was just data entry fields. You don’t see the form until you pay, and print it out. I often get people calling my office to verify their self-prepared calculation, because they don’t want to pay the fee until they know it is right. Even though I am generally a nice guy and will help people out when I can, it’s hard to even discern how the bottom line is calculated if you can’t refer to form numbers.

 

Every American should understand how the income tax system works. It’s fairly simple. All income is taxable unless specifically excluded by the tax code. From our income we can deduct a standard deduction based on our “filing status” or choose to itemize our deductible expenses. Then we deduct our exemptions based on the number of taxpayers and dependents. The resulting taxable income is taxed at the rates prescribed based on filing status. Once we determine the tax, we claim any credits and any tax that was withheld throughout the year. Most of us hope the credits and withholding are greater than the tax because this means we are getting a refund. Refunds are good, although I’ll argue if your big refund is from having too much tax withheld from each paycheck, then you need to spend some more time watching Suzy Orman reruns.

 

There is no mystique to tax preparation. Anyone can put numbers on a form. I have no fear as a professional letting people know this. But I find taxpayers often have trouble determining some basic issues. Believe it or not, determining their filing status – Single, Head of Household, Married filing jointly, or Married filing separately – can be the biggest hurdle. Choosing whether your dependents may be a qualifying child or a qualifying relative is another issue. These seemingly basics selections determine how much income may be excluded, which itemized deductions may be taken, the tax rate, and which credits are available. If you get it wrong, you could end up either getting too much of a refund, or paying more than you needed to. This is where hiring a tax professional can make a huge difference, saving the client time and money along with reassurance that the return is correct.

 

Last filing season I had a handful of new clients that self-prepared returns in prior years and were unhappy with their results. When we looked at their returns, we determined they had chosen the wrong filing status. It is very rewarding to find the mistakes where we can go back and file amended returns to get refunds. It is not so rewarding to notify a new client that they filed their past returns incorrectly and may owe money to the IRS. But it is usually better to find the mistakes before the IRS does.

 

I have found that over the years, some of the greatest value I can provide to my clients is educating them about the tax code and their specific tax situations. If my client will permit me, I actually prefer to go over their return line by line so they understand how the tax is calculated. I often emphasize the importance of tax planning and implementation of tax savings strategies before we file the next years return.

 

The value of a tax professional far exceeds putting numbers on paper. Today’s tax professional should be one of your most trusted advisors – a value that extends much farther than the software.

 

Who is Patrick W. O’Hara, EA?

 

He is the owner of a small tax practice in Salt Point, NY and provides tax consultation, tax preparation and taxpayer representation services. As an Enrolled Agent, he is federally licensed to unlimited practice before the IRS and he is a Fellow of the prestigious National Tax Practice Institute.

 

How can you contact Mr. O'Hara?

 

Patrick W. O'Hara, EA NTPI Fellow
CHR Associates

(845) 242-2151 (office)
(855) 309-0281 (toll free fax)
www.chr-tax.com

Facebook: www.facebook.com/chrtax

 

 

Reasons Why You Should Love Enrolled Agents: Kenneth L. Bailey, EA

Just in case you didn't know (and I will keep reminding you).... Enrolled agents (EAs) are America's Tax Experts. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS.

Kenneth L. Bailey, EA thought you may want to know about this:

Understanding IRS Liens and Levies

There are many misunderstandings about IRS liens and levies. It is important to understand the differences between the various actions the IRS can take, and what they mean for a taxpayer.

Tax Liens - Filing liens are a normal course of business for the IRS when you owe taxes for an extended period of time. Liens are filed to protect the interest of the government. They are reflected on your credit report, and negatively affect your credit score. A tax lien is filed with your local clerk of court, and is a matter of public record. Unlike a collateral lien which entitles a lender to reposes a vehicle if you do not pay your liability, a tax lien is not against any particular piece of property that you own. A tax lien is filed against you as an individual, and "attaches" to your property. It entitles the IRS to any proceeds from the sale of attached assets such as real-estate.

Bank Levies - A bank levy is a one time action that seizes the balance of your bank account on a specific date. You only have 21 days from the date the letter was issued, or about two weeks from when you realize that your funds are missing, after considering the time it takes for mailing the levy notice and the time required by the bank to process it. It is important to contact the IRS as soon as possible and resolve your account if you wish to get the funds released. During this 21 day period, you can deposit additional funds without them being seized. The levy only freezes the balance as of the date the notice was received as well as the interest accrued on that balance during the 21 day holding period. After this period, the bank sends the funds to the IRS.

Wage Garnishments - A wage garnishment is a continuous action. It will continue to take up to 100% of your net income until it is released. Once they start taking the money, those funds are not recoverable under most circumstances, so it is important to act quickly to get them released. The Internal Revenue Manual (IRM) provides a minimum necessary amount be paid to a wage earner to afford basic living expenses. A subcontractor is treated as a business and does not hold that requirement.

Asset Seizures - In rare circumstances the IRS will seize assets such as vehicles, real-estate, or other personal property. This only happens in complex and high dollar cases. Only a Revenue Officer (collections field agent) can perform an asset seizure, not the general collection department (ACS). The IRS will only do this in rare circumstances because they are not in the business of selling property, they are much more interested in collecting cash to pay tax liabilities.

It is important to hire a competent representative to help fight for you if you owe back taxes to the IRS. Some local CPAs, EAs, and tax professionals deal with representation, however many are not very experienced in doing so. To get the best result possible, it is best to trust a company that specializes in tax negotiations and knows the rules of engagement. It is important to know that there are many bad companies in the industry that only want to take your money based on empty promises.

Who is Kenneth L. Bailey, EA?

 

Kenneth L. Bailey is an Enrolled Agent and has been working in the tax industry for over 7 years. He has previously managed a Liberty Tax Service franchise for two years, and has spent the last three years working exclusively in tax representation. He deals with clients that have IRS debt of anywhere from ten thousand to several million dollars, as well as represents clients through the audit or exam process. He knows the IRS rules and regulations, as well as how to represent clients to the highest standards in the industry. He is a member of the National Association of Enrolled Agents (NAEA), Florida Society of Enrolled Agents (FSEA), California Society of Enrolled Agents (CSEA), and National Association of Tax Professionals (NATP).

 

How can I contact Mr. Bailey?

 

If you are in a predicament with the IRS or state tax departments, contact Mr. Bailey at the National Tax Support by visiting www.Pay0Tax.com today.

National Tax Support, LLC
P.O. Box 6074
Vero Beach, FL 32961

Toll-free: 855-PAY-0-TAX (855-729-0829)
Local: (772) 242-9034
Fax: (772) 242-9033
email: Contact@NationalTaxSupport.com

 

 

 

 

Everybody Hurts: IRS Offer-in-Compromise

When the day is long and the night
The night is yours alone
When you're sure you've had enough
Of this life, well hang on

Don't let yourself go, 'cause everybody cries
And everybody hurts sometimes

IRS Announces More Flexible Offer-in-Compromise Terms to Help a Greater Number of Struggling Taxpayers Make a Fresh Start


The Internal Revenue Service announced another expansion of its "Fresh Start" initiative by offering more flexible terms to its Offer in Compromise (OIC) program that will enable some of the most financially distressed taxpayers to clear up their tax problems and in many cases more quickly than in the past.

"This phase of Fresh Start will assist some taxpayers who have faced the most financial hardship in recent years," said IRS Commissioner Doug Shulman. "It is part of our multiyear effort to help taxpayers who are struggling to make ends meet."

This announcement focuses on the financial analysis used to determine which taxpayers qualify for an OIC. This announcement also enables some taxpayers to resolve their tax problems in as little as two years compared to four or five years in the past.

In certain circumstances, the changes announced include:

• Revising the calculation for the taxpayer’s future income.
• Allowing taxpayers to repay their student loans.
• Allowing taxpayers to pay state and local delinquent taxes.
• Expanding the Allowable Living Expense allowance category and amount.

In general, an OIC is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. An OIC is generally not accepted if the IRS believes the liability can be paid in full as a lump sum or a through payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance on legal requirements.

The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place common-sense changes to the OIC program to more closely reflect real-world situations.

When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months, down from four years, and two years of future income for offers paid in six to 24 months, down from five years. All offers must be fully paid within 24 months of the date the offer is accepted. The Form 656, Offer in Compromise Booklet, and Form 656, Offer in Compromise, has been revised to reflect the changes.

Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

Allowable Living Expenses

The Allowable Living Expense standards are used in cases requiring financial analysis to determine a taxpayer’s ability to pay. The standard allowances provide consistency and fairness in collection determinations by incorporating average expenditures for basic necessities for citizens in similar geographic areas. These standards are used when evaluating installment agreement and offer in compromise requests.

The National Standard miscellaneous allowance has been expanded to include additional items. Taxpayers can use the miscellaneous allowance for expenses such as credit card payments and bank fees and charges.

Guidance has also been clarified to allow payments for loans guaranteed by the federal government for the taxpayer's post-high school education. In addition, payments for delinquent state and local taxes may be allowed based on percentage basis of tax owed to the state and IRS.

This is another in a series of steps to help struggling taxpayers under the Fresh Start initiative.

In 2008, IRS announced lien relief for taxpayers trying to refinance or sell a home. The IRS added new flexibility for taxpayers facing payment or collection problems in 2009. The IRS made changes to lien policies in 2011 and expanded the threshold for small businesses to resolve tax issues through installment agreements. And, earlier this year, the IRS increased the threshold for a streamlined installment agreement allowing individual taxpayers to set up an installment agreement without   providing a significant amount of financial information.

We're Going Wrong: Tax Implications of Divorce

It may be time to find a divorce lawyer (and a GREAT tax accountant) if you open your eyes one morning and your spouse sings this to you:

Please open your eyes
Try to realize
I found out today we're going wrong

Please open your mind
See what you can find
I found out today we're going wrong

Divorce is the final termination of a marital union, canceling the legal duties and responsibilities of marriage and dissolving the bonds of matrimony between the parties (unlike annulment which declares the marriage null and void). Divorce laws vary considerably around the world but in most countries it requires the sanction of a court or other authority in a legal process. The legal process for divorce may also involve issues of alimony (spousal support), child custody, child support, distribution of property and division of debt.

Personally speaking, clients that are going through divorce are the toughest to deal with. There are alot of emotions involve. Alot of the times, they didn't take into account the tax implications of divorce. For example, who will claim the children on their tax returns. I would recommend to consult with your tax accountant throughout the divorce procedures. The worst thing you can do is talk about the divorce when the tax return is ready to be filed.

If you need great information regarding the tax implications of divorce, check out this Forbes article written by Peter J. Reilly http://www.forbes.com/sites/peterjreilly/2012/05/06/divorce-lawyers-frequently-not-the-best-tax-advisors/

“My husband and I have never considered divorce... murder sometimes, but never divorce.”
― Joyce Brothers

Sole Proprietor Tax Deductions

Hang ups, let downs

Bad breaks, set backs
Natural fact is
I can’t pay my taxes
Oh, make me wanna holler
And throw up both my hands

I love to find any reason or excuse to write down one of Marvin Gaye’s lyrics. My client who is a sole proprietor sang this verse to me as I explained his tax liability. I love all of my clients so I didn’t know whether or not I should laugh or cry. I chose to play it safe and did both! A sole proprietor’s obligation may include taxes such as sales, estimated, payroll, self-employment, federal, state, local, etc. It has been suggested that we should create a new postage stamp bearing the picture of a weeping taxpayer. Sole proprietors must be aware of all business tax deductions. As a sole proprietor, you are allowed a laundry list of tax deductions. These are expenses that are necessary and relevant to your business. Every tax season, a lot of sole proprietors neglect to maximize their chances of reducing their tax liability. The reason is that they overlooked business deductions that they could have taken. Below is a list of business tax deductions for you to consider.

The Home Office Deduction

This deduction can help take the biggest bite out of your tax bill. If you are a sole proprietor and work from home in a space that is regularly and exclusively used for your business, you can take this deduction, even if that space is not a completely separate room. However, it must be a clearly defined workspace where no personal activities take place. Just because you did some work on your living room’s couch doesn’t make it a qualified workspace for home office deduction purposes.

General Business Expenses

Even if you don't take the home office deduction, there are many other expenses you can deduct to shrink your tax bill. Keep all your receipts throughout the year and a running log or weekly diary of expenses to prove that your deductions are legitimate. Business expenses can cover many items and services, including:

• office supplies......deductible

• printing……. deductible

• postage and shipping……. deductible

• business insurance….. deductible 

• professional fees…… deductible (accountants love to get paid)

• Gifts to keep your spouse happy……Not deductible! Oh yeah, start running and don’t look back because the IRS is coming after you.

Travel and Entertainment

Generally, you can deduct all of your travel expenses if your trip was entirely business-related. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination, including tips, cab fare, and other "life on the road" expenses such as dry cleaning. Meals are the only exception. You can deduct only 50 percent of your meals while traveling.

If your business trip includes personal side trips or extended stays for a personal vacation, you can only deduct travel expenses used for business-related activities. For example, suppose you live in New York, and went on a 7-day trip to California. You spent the first 4 days in business meetings, and the other 3 days spending time with your family. Unless, Mickey Mouse is your business client, don’t try to deduct the family trip to Disneyland. In this example, you can only deduct the costs of the 4 days you spent on business activities. I know the IRS is so darn cruel!

Importance of a tax consultant

Now these baby ballers toy rappers

Calling out my name to bring the boy backwards
Shooting air balls at the basket
What you call money I paid more in taxes

Yes, I know that I’m the first tax accountant to use a Jay-Z verse in a tax article. I appreciate that even Jay-Z knows the importance of paying his taxes. As a sole proprietor, good records and qualified tax advice are essential to the survival of your business. It's always recommended to consult tax accountant like myself throughout the year. I provided you with a simple outline of possible business tax deductions to reduce your annual tax bill. However, tax laws are never simple and change on an annual basis. For example, I didn’t discuss topics such as depreciation, expiring tax credits, phase-outs, amortization, deducting car expenses, etc. Learning about tax changes throughout the year can help your business grow. If you can reduce your annual tax liabilities then you may have more money to invest in your business.

My final piece of advice is to file only honest tax returns. What is the difference between an IRS auditor and a Rottweiler? A Rottweiler eventually lets go! Filing fraudulent tax returns are never worth the risk.

You don’t have to say it….You’re Welcome.