What To Do If You’re Not Going to Be Able to Pay Your 2015 Tax Bill

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KATRINA MADEWELL: Good morning, this is your co-host Katrina Madewell, with the Mr. Darrin Mish.

DARRIN T. MISH: The IRS solution attorney Darrin T. Mish.  Click here to watch or read more information on IRS Back Taxes.

KATRINA MADEWELL: So this week’s show, we’re going to talk about something that hopefully should be right on point for most people listening, and it’s gonna be people worried about their 2015 tax bill, like these people that have got their stuff together, maybe that have filed or they are getting ready to file, and they’re right about that time they’re like ooohhh I have a pretty hefty tax bill, not really sure what to do with that so I’m sure Darrin has some wonderful tips that can lead us into that conversation.

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DARRIN T. MISH: You know, it’s kind of funny to think to think about someone who is just generating a tax bill. You know that second month of 2016 and they’re worried about 2015. I’m just so accustomed to dealing with people that you know, haven’t filed tax return in 5 or 10 years you know hundreds and hundreds of thousands of dollars, so this will be kind of fun.

KATRINA MADEWELL: Just the current tax bill is easy.

DARRIN T. MISH: Yeah, let’s focus on the positive like we say in the show intro, and let’s try to help some people who you know, think they might have some tax bills that are manageable at this time of the year.

KATRINA MADEWELL: By the way we are live in the studio, so after the first segment we’ll open it up for questions and our studio calling lines are 888-404-1010 again 888-404-1010 if you have any questions for Darrin Mish the IRS solution attorney, we are gonna get you through these tips and he’ll be happy to answer those for you.

DARRIN T. MISH: Now I feel uniquely qualified to talk about this, not because I’ve helped, you know hundreds or maybe even thousands of clients with tax problems over the years, but I have faced this exact issue on more occasions then I would like to care to admit. So the first thing I would say is You know if you had your tax return prepared and you know that you are gonna owe, just don’t panic. That’s the first thing, it’s just, just chill a little bit, and don’t panic and try to come up with a plan. You know, it’s gonna seem to some people like it’s the end of the world, but it’s not you know you just have to keep your head on straight and that’s gonna help you make correct decisions and good decisions early on in the process, so that it doesn’t become a catastrophe you know or literally the end of your world as you know it.

KATRINA MADEWELL:  So my question is let’s say you got everything together, you’ve got your tax return ready to roll, and then there’s this big number and you’re looking at going oh snap I realized I had a good year last year didn’t quite realize it was that good, what should they go ahead and file the return anyway and deal with the bill later, like or should they wait and file it and try to come up with the money like I’m thinking maybe this is how some of these things create this domino snowball effect am I ahead of it?

DARRIN T. MISH: Yeah so my first comment is to hold everything.

KATRINA MADEWELL:  Okay.

DARRIN T. MISH: You know we’re only in February here there’s no need to be filing a balance due return at the very earliest until April 15th and this year I believe the filing deadline is the 18th or the 19th, it’s the first.

KATRINA MADEWELL:  On a weird day or something.

DARRIN T. MISH: Yeah, there’s, I think it’s a little bit after the 15th but just you know we can look that up I think’s it’s the 18th uh there’s a holiday in there somewhere.

KATRINA MADEWELL:  Yeah the post office is usually open till midnight.

DARRIN T. MISH: Yeah, for sure the Tampa international post office is opened until midnight not every post office but uh.

KATRINA MADEWELL:  So the 15th this year falls on a Monday no that’s February, well `it helped that it went to April, it’s on a Friday.

DARRIN T. MISH: Yeah there’s some kind of holiday situation there for sure this year so you don’t have to file until the following Monday.

KATRINA MADEWELL:  Sweet.

DARRIN T. MISH: and if you’re up in Massachusetts or Maine you don’t have to file until that Tuesday because Monday is Patriots day up there, so.

KATRINA MADEWELL:  Alrighty then.

DARRIN T. MISH: yeah that’s some kind of unique New England type holiday that us people in Florida don’t really know that much about it I guess.

KATRINA MADEWELL:  I guess it comes with those extra super bowl wins. I had to go there yeah, okay off track, tax bill.

DARRIN T. MISH: That’s for sure, uh so don’t panic, you know, I would say if you self-prepare your return and you’re a small business owner, and you have a large tax bill, you might want to go visit a tax professional just to rerun the numbers and maybe talk to you about some of the deductions you might have available to you.

KATRINA MADEWELL:  Yeah because the likely hood is you probably you miss some stuff if you did it on your own.

DARRIN T. MISH: Yeah almost certainly, you know there is a study one time that really demonstrated the tax preparation is more of an art than a science, they actually had 50 tax preparers look at the same scenario and asked them to prepare that return and they came up with 50 different tax returns.  

KATRINA MADEWELL:  The numbers are probably ranging all over the place.

DARRIN T. MISH: Right with the taxes, and you know the balances still raging all over the place so that will be my first suggestion, if you are self-employed or have some kind of situation where you have a lot of deductions then you’re gonna want to have someone take a look at it before you file that thing.

KATRINA MADEWELL:  I forget what the stats was I just saw this recently like when someone prepares your tax returns vs. Self-preparation, it’s a pretty good percentage of things that get missed and the refunds of the amount or she owes less.

DARRIN T. MISH: Well for sure I mean everybody has their job right, everybody has their career and their profession that they engage in and if you’re not a professional tax preparer and you have a complex tax return then you should not be doing your own return I mean self-disclosure here, I don’t do my own return because that’s not really what I’m really good at. I’m really good at solving IRS problems and disasters, catastrophes, and so I have my analysis accountant go ahead and prepare my tax returns because I think he’s better qualified, you know, so the next thing I would say is if you do if you have generated a large tax bill for your 2015 taxes, you kinda want to make sure that you stay current on your current year tax, so stay current for 2016, that means you know if you owed 50 thousand dollars for 2015 then you want to stop the bleeding so you’re gonna want to start thinking about making estimated tax payments for 2016, does that make sense? Because especially if like somebody in your profession where you’re realtor and you’re a commission.

KATRINA MADEWELL:  See I do that like I learn the hard way like you know some, what’s that old saying to do the same thing over and over again and never change anything.

DARRIN T. MISH: Insanity.

KATRINA MADEWELL:  Absolute insanity, so you know it didn’t take me much of owing the IRS that I’m like, yeah I’m gonna make these estimated tax payments, I don’t even wait till quarterly, I pay monthly.

DARRIN T. MISH: yeah, I would suggest that people that are in businesses where they are getting checks you know, on an irregular basis, they should probably just go ahead and take a percentage out of that check and send it in on that time.

KATRINA MADEWELL:  25 percentish.

DARRIN T. MISH: Yeah 25, I would say the range is like 20-30 percent, it kind of depends on how much money you’re making.

KATRINA MADEWELL:  Well 25 percent would be a good gage, because you’re either probably gonna get a refund or owe a small amount, that’s better than a big tax bill.

DARRIN T. MISH: So a lot of people don’t know this but you can make your estimated tax payments more frequently then quarterly, so there is a big myth out there all you have to make it quarterly, well no the IRS will take your money every day, that’s what you want to do, they will take it, they might start to complain if it’s significant somehow every day I guess.

KATRINA MADEWELL:  But monthly is my considered over.

DARRIN T. MISH: No, no monthly for sure and I have people that are my clients that pay weekly but you’re gonna want to make sure that you go to the IRS website that’s at IRS.gov and download forum 10 40 E S that stands for estimated tax payments, get the 2016 forum it just came out and then make sure when you make an estimated tax payment to try to just fill out the coupon for the quarter that we’re in. So for example we’re in the 1st quarter use coupon number 1, in June use coupon number 2.

KATRINA MADEWELL:  So what about people with commission income like you talk about real estate agents and that they’ve had numerous people over the years that have been your client, and that situation, essentially they could pay whenever they earn a commission.

DARRIN T. MISH: Right, exactly that’s what I tell the real estate agents as when you get a commission, you don’t know if you’re gonna get a commission every month or every week, maybe it’s every couple months, maybe it’s every 3 months.

KATRINA MADEWELL:  Yeah the average agent I think sells less than 5 properties a year.

DARRIN T. MISH: yeah so okay that would be you know every 2-3 months, go ahead but let’s say they make a 10,000 dollar commission, just so the numbers are nice around, what I would suggest they do is go ahead and take out 25 percent, $25,000, and just send that to the IRS, right away that’s out of their life now, they can’t borrow it, that’s what people do is they you know they have good intentions, they set the money aside a lot of times, and then they borrow because something comes up, well if you get that money out of your life and you know longer have access to borrow, then you will figure out something else.

KATRINA MADEWELL:  Out of sight, out of minds it’s that whole zero base budget principal right, I’m gonna tell my money words and now on before it just goes where it wants.

DARRIN T. MISH: Exactly, so you know that feeling that you have when you get that commission check on that day right, you feel kind of rich.

KATRINA MADEWELL:  I don’t because I don’t pay myself like that, like I’m paid at flat salary and then I do a little incentive on stuff that closes, so I probably pay myself less.

DARRIN T. MISH: So I would suggest most real estate agents kind of feel have that rich feeling, on that one day.

KATRINA MADEWELL:  I guess at some point when I first started I did.

DARRIN T. MISH: Yeah so if you just take that 2500 dollars out, that day that you feel rich, well day 2 you still feel kind of rich but now you’ve prepaid the taxes or at least a significant portion of the taxes so you can’t get in trouble, or you get in a lot less trouble, because you’ve got a lot more paid in at the end of the year.

KATRINA MADEWELL:  Well if you paid it in 2500 bucks that thing probably can’t be more than 500 either way.

DARRIN T. MISH: I’ll tell ya, it’s an amazing feeling if you’ve gone years as a self-employed person and your plan has always been well I know I’m gonna owe it then at the end of the year and I’ll just figure it out, it’s an amazing feeling the very first year you pay an estimated tax payments and either you have a very small tax bill or you actually get a refund. I’ve actually had that happen where I paid in so much in estimated tax payments I got some of that money back.

KATRINA MADEWELL:  Or if you have kids like I have 3 so that changes the dynamics a little right, you get the credit I think, I don’t even know I don’t do my taxes.

DARRIN T. MISH: Yeah you do for sure the funny thing is I always think about is that tax credit is not enough I mean the kids really cost a lot more.

KATRINA MADEWELL:  I don’t know how much it is I just hope I’m getting the credit is all I want to say, so you’re listening to the IRS solution attorney show, I’m your co-host Katrina Madewell, with Mr. Darrin Mish and we have someone that called in so if you want to call back we’ll catch ya after the break 888-404-1010 sorry we couldn’t get to you before the end of the first segment again 888-404-1010 we will answer your tax question back in a minute!

 

(Commercial break)

 

DARRIN T. MISH: Welcome back I am your IRS solution attorney Darrin Mish.

KATRINA MADEWELL: I’m your co-host Katrina Madewell, thanks for having us on the car driving around, if you missed any part of the show by the way the whole thing will go on a pod cast.

DARRIN T. MISH: You find the pod cast at IRSsolutionattorney.com or on my website GetIRShelp.com.

KATRINA MADEWELL: And you can call in this morning at 888-404-1010 again 888-404-1010 and if you’re too shy and you don’t want to talk on the air that’s okay too, you can call Darrin at 888-438-6474 that’s 888-GetMish.

DARRIN T. MISH: 888-438-6474 that’s 888-GetMish.

KATRINA MADEWELL: Yeah 888-GetMish is probably a little easier to remember, so where did we leave off, we were talking about if you have that 2015 tax bill, and you owe some money.

DARRIN T. MISH: So at the office we call that cutting the head off the snake, so if you were talking about keep current right, so don’t continue to do like you said don’t continue to engage in insanity by doing the same thing over and over, which is not you know failed a plan and just try to figure out how to pay your big tax bill at the end of the year, make some estimated tax payments, go to the IRS website at IRS.gov and download forum 1040-ES and throw some money at the problem for this year then that way.

KATRINA MADEWELL: you can even do it online, right that’s how mine is.

DARRIN T. MISH: you absolutely can make some online payments I’ve done it myself, it’s pretty efficient and it’s actually free, so there are also are credit card and debit card solutions on the IRS website where you can pay in that fashion.

KATRINA MADEWELL: The other thing too I want to comment on much is from an outsider prospective, like I go in and pay the tax amount but then they have all of the break down with holdings like the FICA, what’s, the SSI. Whatever they are, I don’t fill any of that in I just put the one number and somehow it all works out.

DARRIN T. MISH: yeah that’s exactly right, you know if you’re a wage earner and so you get a paycheck and you have taxes pre withheld then you’re just gonna use the federal income tax number on your w-2 so you don’t have to worry about the FICA and the Medicare tax and all that stuff, you just have to worry about the federal income tax figure on your w-2, now on the other hand if you’re self-employed and you’re not incorporated, then you’re gonna go ahead and file on a schedule C and then you’re gonna need to file on a schedule S-E which stands for Self Employed and what happens there is since nobody withheld social security so Mr. FICA for you, you get to pay both halves of Mr. FICA with a self-employment tax so instead of paying 7.65 percent, you’re gonna end up paying 15.3 percent, so self-employed people pay some of the highest taxes around, and so that’s why you’re gonna want to talk to somebody a tax professional and talk to them about better organization perhaps you should form a LLC year corporation so you can reduce some of that tax burden that self-employment tax is a killer.

KATRINA MADEWELL: And if you don’t have the organization, like I’m not, I can’t stand the numbers and the details and the receipts and the papers, so I hand all that stuff to a bookkeeper once a month and she organizes it and it goes off in a magic blue envelope which gets stored.

DARRIN T. MISH: You know as the business owner and entrepreneur you know I think that you’re what you do sounds like it makes sense, I mean you should not be down in the numbers trying to keep the books because that’s not what you’re good at that’s not where you generate revenue, so book keeping you know paying somebody whatever you pay them some small amount.

KATRINA MADEWELL: I don’t know what I pay them but it’s worth it, it’s a fraction, it’s worth it, for me it would take me 5 times the amount of time it takes them to do it.

DARRIN T. MISH: So the moral of the story is you set up some organization at the beginning and then you just go ahead and implement that and do that month after month, year after year, and that’s a lot better than most people’s plan which is no plan.

KATRINA MADEWELL: Exactly, so stay current on the taxes is a good thing, don’t let that snowball kind of catch up on you and then what about people that ignore the letters, and the calls, and that kind of stuff from the IRS.

DARRIN T. MISH: So this is one of my favorite kind of things, a lot of times people just put their heads in the sand like an ostrich and they get that little orange slip from the post office that says we have a certified mail waiting for you at the post office and you know most people are at work during the day and so they’re not there for the postman and a lot of people are under the impression that if I don’t sign for that if I ignore it, if I just don’t pick it up, then it’s not really real and so I can’t tell you how many people, countless people over the years have come into the office and they said I got a certified letter and I said great can I see it? They say it got sent back and never signed for it, I was afraid, so don’t be afraid.

KATRINA MADEWELL: So let me chime in on that because you have somebody like me like for the last couple weeks my schedule’s been 15-16-17 hour days so I’m leaving at 7 AM, getting home at god knows when the post office is not open at that time and they certainly don’t want to deliver what should they do, sign the thing to leave it or is there another option?

DARRIN T. MISH: Yeah I believe there is, you can sign the back of the orange slip or you can find time, most people can find some time during the day to go back and try to pick that up from the post office, give them instructions to leave it, but don’t ignore the IRS.

KATRINA MADEWELL: It’s not gonna disappear.

DARRIN T. MISH: It doesn’t disappear or slogan at the IRS or the offices IRS problems don’t solve themselves, I mean they typically don’t just magically go away, despite the stories that I tell during the last segment of our show.

KATRINA MADEWELL: some of them go away depending on how old they are, Darrin just makes them go away like boop.

DARRIN T. MISH: Sometimes they go away, but they rarely go away on their own, you know if you don’t have any guidance from someone who’s been around the block a few times, so I would say just don’t you know don’t ignore the IRS don’t ignore them if they are trying to reach you, the other thing that sometimes happen you know for bigger cases an IRS revenue officer will be assigned to the case that person who works for the IRS in your local area and they’re assigned to get the money, and so what they’ll do is they often make home or office visits, so they’ll come by and if you’re not there they’ll leave a letter and a business card, don’t ignore that person, that person.

KATRINA MADEWELL: especially if they are sending someone to your office that’s not a good plan.

DARRIN T. MISH: you know that person has the authority to you know siege your bank accounts, garnish your wages, and basically make your life a financial hell.

KATRINA MADEWELL: if we talked about this on this story this is like you’re gonna go to the gas pump and try to swipe your debit card and it’s gonna go inefficient.

DARRIN T. MISH: I hear stories like that every single month.

KATRINA MADEWELL: or buy groceries and you know $5 in the bank is gone.

DARRIN T. MISH: that’s one of my big fears,

PAT: I have a question, my son I caught him last night doing his taxes on his phone, now I have never in my life thought about doing my own taxes much less doing them on my phone it goes no you know I just downloaded turbo tax, I’m doing my taxes here and blah, I’m scared if he did that wrong, not only did he do that on the phone, but a lot of people buy the program, download it, put it on their computer, and that’s still seems too complicated, too scary how do you feel about that?

DARRIN T. MISH: That’s Pat our producer who asked a question and we talked about this situation a little bit before the show, his son is about 19 years old and worked in the military and had a part time job at I believe home depot, and he related that story to me and I was thinking well that’s probably just about the only person that I would recommend download turbo tax and do their taxes because his financial situation was very very simple, it’s also a generational thing right I mean you wouldn’t even think to do it on your computer and there’s your kid doing it on his cellphone because he really doesn’t know any different that’s his world his that he was when he was born there was computers, he used them all the way growing up, and so that seems really normal to him, you told me a little bit about the situation and I think that’s about right, now what I’ll tell you what I see all the time which is people maybe they have couple comes to mind as a couple number of rental properties like 8 or 10 rental properties in another state and there doing their own returns using Turbo Tax, this return is like an inch thick of paper and not surprising they got audited because they made a mistake that they weren’t even aware that they made. Turbo Tax is decent software, the thing that people don’t realize is you must bring some knowledge to the table in order to prepare inaccurate complicated return for turbo tax, I’ve actually prepared complicated returns for turbo tax but I brought some knowledge to the table before I did it it’s really easy to take a wrong turn on turbo tax and get yourself screwed up. And I think one of the biggest problems that turbo tax has is there’s a running total of how much you owe or how much refund you’re gonna get in one corner of the screen and so what happens is people reach a fork in road, right, say yes or no question and what they do is they click yes, well if I click yes then I owe money, if I click no I get money back.

KATRINA MADEWELL: Oh my gosh that is dangerous, I had no idea, I’ve never used Turbo Tax.

DARRIN T. MISH: Yeah it incentivizes bad decisions and I’m not knocking turbo tax, it’s a fine software but you know yeah have to have some experience to use it correctly in most situations now if you have two wage earners you know couple bits of both wage earners with appropriate taxes withheld and they rent or something like that any they have no nothing else financial going on, Fine not a problem at all but you get in to a self-employed person you get into real estate you get into…

KATRINA MADEWELL: like the minute you’re a homeowner is a fine example you can both be wage earners but if you own a home or you have kids anything that’s gonna complicate the situation, spend a few hundred bucks and let do somebody do it that knows what they are doing, because those rules change every year.

DARRIN T. MISH: yeah you get into those itemized deductions on schedule A, like you’re talking about the humble rich interest and you’re just asking for trouble.

PAT: Yeah I was gonna bring that up about Turbo Tax um they use turbo tax from 2 years ago, would it automatically say it needs to be updated, do not do that because they want you to purchase another one and you wouldn’t know about things that have changed.

DARRIN T. MISH: Yeah turbo tax comes out every year so it’s a different software program every year, and so it corroborates, it changes every year, but sometimes there’s changes mid-year that have to be incorporated and the software will automatically upgrade itself to take care of that.

KATRINA MADEWELL: I mean you better pay for the software so like how much does the software even cost, you know?

PAT: Now I think 39, 49 dollars depending on which you know you get the deluxe 1 or 2 or something like that.

KATRINA MADEWELL: So for a few dollars more really you could have someone file that’s probably gonna find some deductions that turbo tax didn’t find anyway.

DARRIN T. MISH: I would say your average tax prepares can charge somewhere between 300-500 dollars.

KATRINA MADEWELL: Simple simple return might even be a little less.

DARRIN T. MISH: Yeah, very simple return like pass sign that will be very inexpensive I think.

KATRINA MADEWELL: Well you’re listening to the IRS attorney show with Mr. Darrin T. Mish I’m your co-host Katrina Madewell, it’s about that time at the bottom of the hour we have to take a quick break, we are here live in the studio this morning and we’ll take your calls at 888-404-1010 888-404-1010 save that number in your phone don’t forget you will be registered for a FPU course and we’re glad to have you this morning, thanks so much for listening, we will be back in a minute.

 

(Commercial break)

 

KATRINA MADEWELL: Welcome back you’re listening to the IRS solution attorney show Mr. Darrin T. Mish, and I’m your co-host Katrina Madewell, thanks so much for listening to us this morning, and so the earlier part of the show if you missed it, we were talking about someone that was getting ready to file their 2015 tax bill or tax return and they realize that they owe money, and they’re like ohhhh and so my question to Darrin was ok you realize you owe money, it’s so early, it’s February, it’s not April 15th yet, you know what’s the best course of action if you don’t have the money?

DARRIN T. MISH: So we talked about you know don’t panic was number 1, and number 2 was let’s see how to get current so we don’t continue to happen again and again. So either adjust your with holding at work you know fill out a W4 and get that number fixed if that’s what the problem is your just not having enough tax taken out of your pay check, or make some estimated tax payments on forum 1040ES that you can pick up at the IRS at IRS.gov.

KATRINA MADEWELL: Let’s say you didn’t do that.

DARRIN T. MISH: if you didn’t do that, don’t ignore any attempts that the IRS is making to reach you, which they wouldn’t if you only vote for 15 because you haven’t filed yet and it’s not required that you file, so the next thing I would say is have a plan, have some sort of plan in mind for how you are going to resolve this issue before you file the return, it’s not common but I’ve seen people file you know large balance returns you know in February or March, before it was even due, so by all means get an extension. There’s an automatic extension now that’s available to everyone until October 15.

KATRINA MADEWELL: But do you think that’s a good plan?

DARRIN T. MISH: I would say hey if that’s what you need is to get an extension to have time to calm down enough to devise a plan or meet with somebody to help you with a plan then by all means you should request an extension because what happens is the filing of the large of the balanced due return that triggers certain things at the IRS, it’s gonna start the collection wheels moving, until if you don’t file the return until October, then the collection wheel won’t start moving until October at least.
KATRINA MADEWELL: But doesn’t get lost in the shuffle with all the people that are getting their refunds, because that’s usually the people that file early is the ones that are getting a tax refund, you don’t think it gets lost in the shuffle a little?

DARRIN T. MISH: No, it doesn’t get lost

KATRINA MADEWELL: You know you see you know this stuff, that’s why I’m asking it

DARRIN T. MISH: No I’m actually surprised, I’m a small government guy, I don’t really believe the government should be as large as it is, but they’re remarkably efficient at processes tax returns and processing balanced due returns and processing checks, the running joke in the office is, If I file an appeal or if I’m asking the IRS for something and I have to send it in by mail by all means I must send it certified mail so I approve they got it, but I sent 6th figure checks to the IRS with the regular first class stamp, and it’s gotten there 100 percent of the time, so they’re very efficient at processing payments.

KATRINA MADEWELL: Just not so much the correspondence.
DARRIN T. MISH: Yeah the correspondence you know I don’t think it rises to the same level of importance for those folks, so go ahead and get an extension if you need one, in order to you know gain some time to try and figure out what you should do

KATRINA MADEWELL: When is the late filing actually kick in, like when you don’t, cause you can get another extension right, even after October I think like one more month?
DARRIN T. MISH: No, what you’re thinking about is you’re obviously old enough that you’ve filed some returns in your life, about 10 years ago, they changed the rule, you used to have to get two extensions there was one you got till august automatically and then you could request another extension until October, and I want to say maybe 10 years ago they changed that to just now everybody can get an until October extension.

KATRINA MADEWELL: Jeez you can time dated myself and then listen for awhile.

DARRIN T. MISH: Well I was one of those people in the former life that had to have the October extension every single time, I remember that as well, so if you have a very small liability, it’s a under 10 thousand dollars, maybe under 20 thousand dollars, then you’re gonna want to go ahead and contact the IRS to try to make a payment plan, the formal name for a payment plan is an Installment Agreement ok? so you’re gonna want to go ahead and call them and get that worked out, if you owe 25 thousand dollars or less, it’s automatic basically, if you’ve not had a prior tax liability in the prior of 3 years and you owe under 25 thousand dollars, it’s an automatic installment agreement, the funny thing about this is, that everybody when I asked people no matter if they owed 20 grand or if they owed 2 million, I say well what kind of monthly payment would you be comfortable with, what do you think the number is?

KATRINA MADEWELL: 100 Bucks?

DARRIN T. MISH: its 300 hundred bucks, no matter what everybody is like, well I can probably do 300 dollars.

KATRINA MADEWELL: That’s for making a car payment.

DARRIN T. MISH: Yeah, I don’t know where that comes from, but it’s been the same 300 bucks for you know almost 20 years now, so interesting inflation really hasn’t taken over in that part of the mind I don’t think but yeah you can contact the IRS and try to work out an installment agreement, just make sure if you’re making estimated tax payments like I just told you too that you make sure that that’s budgeted in to whatever you make a share of your payment at…

KATRINA MADEWELL: I was going to say how they drive like there’s no formula to calculate what the payment needs to be or do they just work it out with you.

DARRIN T. MISH: Generally speaking without getting to boring and dry here, they’re gonna want you to have that thing paid off between 60-72 months.

KATRINA MADEWELL: That’s kind of what I was wondering.

DARRIN T. MISH: You know in those automatic installment agreements.

KATRINA MADEWELL: You might have to trade your car payment in for your IRS installment plan basically.

DARRIN T. MISH: Well let’s hope not, that leaves me to my last comment in this particular line of thinking we’re talking about, and that is get in touch with somebody who’s handled a tax problem or two, it always makes me laugh when some clients come in and they tell me how they want me to handle the problem and I just kind of chuckled to myself and I’m thinking, you know I’ve done this thousands of times I have an idea what’s going on here and I have an idea what’s possible and what’s not possible, and I can tell you with a high degree of confidence Katrina, that I’ve never had somebody give up their car so that they can pay the IRS, a car actually built the operating and the ownership expense, so what are allowed looks expenses with the IRS and what is that, I mean that is a bunch of jargon, right so your car payment up to a certain level and your fuel maintenance insurance those are all allowable expenses so the IRS can’t only in the rarest of circumstances could they make you get rid of your car so that you can pay them.

KATRINA MADEWELL: Well you know, they want you to keep working so you can keep filing taxes.

DARRIN T. MISH: But my favorite story about they were gonna take a car was I had a client that was actually a corporation and the corporation significant amount of taxes 6 figures at least, and the corporation was out of business it been the only thing it owned was about a 40 thousand dollar free and clear like super-hot rod corvette and the only share holder of the company you know that corvette was his baby, and he had been contacted by a revenue officer who wanted to seize that car really really badly, because it was red and it was one of the high end corvettes that you could do you know I don’t know 150 MPH, 200 MPH whatever and the revenue officer was like almost giddy when he was talking about how he was gonna seize the car and cars are pretty easy to seize if you think about it, like procedurally they’re pretty easy, you send a wrecker out, they hook it up, they haul it off to a wrecking yard and it’s seized.

KATRINA MADEWELL: Those guys, if you ever caught any of those shows, they are like following you around, even if you go into a 7/11 to buy a cup of coffee and you come out and your car is gone.

DARRIN T. MISH: Yeah it happens real fast, now there’s some paperwork obliviously the IRS has to file and all that, and in that case what we did because the sure holder the human being that I was representing as well as the corporation really wanted to save that car, so we made a deal, we cut a deal with the IRS to save the car, and we didn’t have to pay the full price either, the full fare market value, we had paid some negotiated you know lower number, despite how giddy how the revenue officer wanted to seize the car.

KATRINA MADEWELL: And he got to keep the car?

DARRIN T. MISH: He did, in fact to keep the car, he told me a story later that he in celebration he drove alligator ally at about 150 MPH and I’m like that’s a different lawyer.

KATRINA MADEWELL: So Darrin does give a lot of questions on his Facebook and his twitter feed which is at Darrin_Mish and you can hit him up on twitter or Facebook or call him at 888-GetMish, but one of the questions that he had was from Robin and she says I live in Michigan and I catch your show from your podcast feed on your site at TheIRSsolutionattorney.com recently I hired a tax attorney from another state and completely forgot to ask him about the back taxes that I owe to the state of Michigan, so we’re talking about state taxes here, is there any chance that they can be negotiated with as well, I asked my attorney the same question but was just curious to hear your take on it.

DARRIN T. MISH: You know cause we’re down here in Florida and we don’t have state income tax, this is something that you know a lot of people don’t think about because it doesn’t come up but also because we’re in Florida and we have such a transient population, this question gets asked to me quite a bit, the states actually are more aggressive then the IRS in collecting your money, and the reason is, when the federal government runs low on money, when they have a deficit they just print more money.

KATRINA MADEWELL: I was gonna say the same thing.

DARRIN T. MISH: But the states can’t print more money, they actually have to balance their budgets and so their much more aggressive in getting their money, now I can’t unfortunately answer the question specifically does Michigan have you know an offer in compromise program where you can make a deal for example, but many many states do, I also don’t know off the top of my head since I don’t practice in Michigan if there’s a statute of limitations for the collection of tax like there is in the IRS realm, they back up and explain that for federal income tax the IRS basically only has 10 years of the years from the date that taxes are assessed to collect the money, some states have a statue to limitations like that and some states don’t so you’re gonna have to look that up, I actually do and can represent clients in the state issues in every single state I have not ever done one in Michigan, I have done them in Virginia, and in New York, and California, and Maryland, and a variety of other places, but most states do have some sort of offer program where you can cut a deal with them as well. Now this advice that I’m going to give is a little bit of or list of suggestion that I’m going to give is a little bit different then I’ve given in the past is you should probably work out your state tax problem first, before the federal problem, and that’s because if you’re gonna go ahead and work out an installment agreement, a payment plan, with the state, you’re gonna want to go ahead and do that before the feds because the feds changed the law a few years ago and those state tax payments are actually considered allowable expenses, so what that means is, they’re gonna go ahead and say ok if you’re paying the state 200 bucks a month, or whatever it is, that’s money that’s not available to pay the feds, the IRS, the tax bill. In the past, the IRS attitude about that was well, the heck with the states, you should pay us first, so we’re not gonna consider that an allowable payment, and that was really kind of a confusing scenario for folks, but I would say for most people that owe us state tax problems you’re gonna want to go ahead and sell that problem first and follow up with the feds after that.

KATRINA MADEWELL: We also had another question from Rick in Tampa and he says my stupid clients sent me two separate 1099 forum for the same work, should I just throw that away?

DARRIN T. MISH: No, you should not throw that away, you should contact the client and you should try to issue a corrected 1099 just one, and this is fairly common, I actually handled that was a tax work case, it was one of the trainers leak in the past, and that was where there was two 1099’s and one was for $100,000 and $100,750, clearly the same work, what happened is, the second one was correct the higher one was correct the first one was incorrect, they both got filed with the IRS, the IRS counted those as two separate 1099’s for 200 thousand dollars income and not 100 and what happened is we ultimately had to file a notice of deficit or that we got a notice of deficiency from the IRS, we had to file a tax corp petition and were just a where a tax payer can actually technically sue the government and once the IRS council saw that situation it was the fastest case I’ve ever handled like out of stipulated settlement immediately.

KATRINA MADEWELL: But the simple way to fix that is to have the guy that sent the 10-99 file corrected document?

DARRIN T. MISH: Yeah that’s the simple way if you can get them to file a corrected document, that’s gonna be the much less expensive way instead of waiting for a notice of deficiency, and paying a lawyer a bunch of money and then filing a tax corp petition for sure.

KATRINA MADEWELL: That does not sound easy or fun, you’re listening to the IRS solution attorney show with Darrin T. Mish, I’m your co-host Katrina Madewell, if you have a suggestion, or a topic, or an idea for the show, we are very open, you can call in with any questions tax, IRS scenarios at 888-404-1010 or hit Mr. Darrin Mish up at Darrin_Mish and he’s also on Facebook and we may make ya the topic of the show.

 

(Commercial break)

 

KATRINA MADEWELL: Good morning, and welcome back to the IRS solution attorney show with Mr. Darrin T. Mish, I’m your co-host Katrina Madewell and you know just before we left off we won’t make you an example, your story I sure say, so we have Gene now he is actually holding with a call so we are gonna take that so we don’t run out of time he’s been so patiently holding for a couple of minutes, Good morning and welcome to the show Gene.

Caller Number 1: Hello, good morning, I have a question I was a beneficiary of my uncles estate I received a policy at around 30 thousand dollars, this is just one of them, and (inaudible), it was with an insurance company, American General, so they took 10 percent out and they sent me the rest and said they couldn’t roll it over. This year I got the 1099, or something like that. What will be my taxes on that? Do I have to pay more or…

DARRIN T. MISH: It’s impossible for us to tell you on the air here, but what you’re gonna want to do if you don’t normally have somebody help you with your taxes, you’re gonna want to have them help you for this particular year, for this one issue, and you’re gonna have to pay tax on if it’s an IRA that you inherited then you’re gonna have to pay tax on the proceeds from the IRA. The 10 percent they took care of, this is a common problem by the way, is that when you do an early withdraw from an IRA the company’s will often withhold the 10 percent and people think that that’s the whole burden you know the whole tax burden but it’s not, there’s a tax, there’s probably a tax liability coming for the proceeds of the IRA but since I don’t know enough about your specifics and it’s not really a private place to talk about it, I will suggest you get some help on that one just for this one particular year.

KATRINA MADEWELL: Or you know you can call Darrin’s office he’ll be back in a little bit after the show, 888-GetMish or one of his lovely fine staff and can answer the phone and make an appointment.

DARRIN T. MISH: Yeah we could do that for sure you know.

Caller Number 1: Okay well thank you very much.

DARRIN T. MISH: Thanks for calling in, I appreciate it.

KATRINA MADEWELL: So next you have a pretty cool story to share.

DARRIN T. MISH: Yeah there’s a story that’s in the news right now and it’s about this former D.C drug kingpin he actually went to prison about a decade ago, he served 9 years in federal prison for drug charges and during that time frame, he ran up a 16 million dollar tax bill and he was he actually plead guilty to tax invasion and drug charges and he did 9 years in federal prison, well he rebuilt his life, and he became a success and started his own business and whatnot.

KATRINA MADEWELL: Wait from prison?

DARRIN T. MISH: After prison, he rebuilt his life and you know he made another go at being in a business for himself again, but he’s kind of a slow learner because he forgot to pay his taxes again and he has an unpaid tax bill of 1.8 million dollars on nearly 5 million dollars in unreported taxable incomes and it looks like he’s going to be going back to prison, because he just plead guilty again to tax invasion in federal court on Tuesday and his sentencing is coming up, but I would imagine he is gonna get whacked pretty good, because he is apparently a pretty slow learner, you know I don’t begrudge the guy at all having gone to prison one time, paid his debt to society, he came out he proved you can be a success even after you come out of prison, but he just forgot to put that organization that we were talking about back into place so he can pay the taxman that is due, I am not in love with the tax man, I don’t particularly enjoy paying taxes but it is unfortunately an obligation that we have as citizens of this great country to pay something in taxes for the most part, so I think he forgot about that part and best guess is he’s gonna get another few years at least to remember that for the next time, so obviously (inaudible).

KATRINA MADEWELL: I have a question real quick just kind of spinning genes not to go back to his situation but aren’t there cases as well where inheritance isn’t taxed? Cause I thought I got that from you before another show.

DARRIN T. MISH: There are other cases where inheritances are not taxable for the most part of the general rule that proceeds from life insurance are not taxable but there’s a little loophole in the law where the proceeds from the IRAS are in fact taxable as far as I remember, and that’s because for the most part IRAs have not had any taxes paid in on them, that’s why I felt like Gene needed some help for that particular situation.

KATRINA MADEWELL: So we didn’t exactly get the train wreck music cued up, do I have to make like a train -makes screeches noise- crash, there you go there’s your train wreck music Darrin.

DARRIN T. MISH: This is the segment of the show where we talk about the IRS train wreck of the week, and what that is, is that’s where we talk about somebody came into the office and they were pretty much a mess and ultimately through you know our assistance and our help they ended up with a happy ending.

KATRINA MADEWELL: Darrin prettied them up, like got them all dressed up.

DARRIN T. MISH: Yeah so in this particular case what had happened is I had a husband and wife come in and they had not filed tax returns in a number of years pretty common for people to come in and they haven’t filed 5,6,10 years’ worth of returns, we helped them to get their returns prepared, and at the time the husband was, in the years that we prepared the returns for he was a mortgage broker and an independent mortgage broker, and you remember back in the days of the real estate boom that I called the wild west, those guys were making a lot of money, and he wasn’t filing his tax returns but by the time he had come back to me, he had left his private business because it went under when the during the great recession and he was back working for a big bank doing mortgage underwriting.

KATRINA MADEWELL: Oh that’s scary, just from so you know, whatever…

DARRIN T. MISH: I’m not making the judgement calls on that but…

KATRINA MADEWELL: It was just my non bias non attorney opinion.

DARRIN T. MISH: Ultimately we ended up filing those returns and he owed 169 thousand dollars to 169,240 dollars and 71 cents, ok well what we did is we filed what is called an offering compromise which is where you can make a deal but settle for less is based upon our relatively simple math equation and it goes like this real briefly, monthly disposable income times 12 plus your asset equals the amount of your offer, and so that’s a brief example of your monthly disposable income was a 100 bucks 100 times 12.

KATRINA MADEWELL: Meaning that’s all you have left after all your bills are paid.

DARRIN T. MISH: After all your allowed expenses all you had was 100 bucks 100 times 12 is 1200 bucks let’s say you had no assets you can settle a big case, it doesn’t really matter how much you owe for 1200 bucks, now this is certainly not a typical situation for people, but that’s the formula, so in this case what we did is we filed an offering compromise (OIC) and we waited because the IRS doesn’t have enough people to handle these cases, we waited between 6 months to a year, and ultimately we got that thing settled for 6504 dollars, so I did some fancy calculations and that’s 3.8 cents on the dollar.
KATRINA MADEWELL: So I imagine that wait time is the better the scenario might get?
DARRIN T. MISH: Not necessarily, it’s just the wait time is a function of how few people at the IRS has processing offers and how many offers are being filed, so there’s kind of a cool exemption in the law and that is if the offer is more than 2 years old then (inaudible) so you have a time limit but right now (inaudible) somewhere between 6-18 months.

KATRINA MADEWELL: So you find that (inaudible) biting their nails while they’re waiting for the IRS to respond?

DARRIN T. MISH: Some of my clients email in a monthly saying or a weekly saying what’s going on what’s going on I have to try and calm them down and say things like you know it took a decade to get here, it’s gonna take a little while to get out.

KATRINA MADEWELL: (inaudible) so you’re listening to the IRS solution attorney show, thank you so much for sticking with us this morning, hopefully you learned a little something from the show and you enjoyed it, (inaudible) IRS problems send them on over to Darrin Mish 888-Get-Mish, we’ll be here every Thursday at 9 AM thanks so much for joining us for this week we’re out!

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