The Internal Revenue Service will begin accepting electronically filed income tax returns on January 23, 2017. But more than likely, you will not receive all of your tax filing documents by that day. Employers and providers of all third party documents such as W2s, 1098s, and 1099s have until January 31 to mail these documents to recipients. Therefore, most Americans will not be ready to file until the first week in February.

The deadline for filing your 2016 income tax return is April 18, 2017. Of course, you may file for an extension to Monday, October 16, 2017 (the 15th falls on a Sunday, so the due date defaults to the next business day). Keep in mind that the extension is merely for time to file, not time to pay. The IRS expects all taxes to be paid by April 18. Beware! The penalties for failure to pay are 5% of the unpaid tax per month for a maximum of 25%. That can be incredibly expensive.

Legal entities such as C and S corporations, LLCs, partnerships, etc. now have new due dates. Check with your tax professional or visit to find out when these returns are due.

If you are able to enjoy the Earned Income Tax credit, the Education credits (Lifetime or American Opportunity tax credit), the Additional Child tax credit or if you have been the victim of identity theft or use Form 8379 (injured spouse allocation), your refund will be held up until at least February 15 even if you file right out of the gate on January 23. These returns take additional verification and therefore more processing time.

There are a few updates to tax law that you should know:

  1. Beginning in 2016, educator expenses will include the cost of taking professional development courses. The maximum amount you can deduct on the face of the 1040 under Adjustments to Income is $250. It’s been that rate for many years. However, beginning in 2017, this amount will be adjusted for inflation. Any amounts in excess of $250 are deducted as an employee business expense on Schedule A if you are able to itemize.
  2. So many states are making the use of medical marijuana a legal activity. However, the federal government does not agree. Which means the IRS doesn’t either. For 2016 and the unforeseeable future, no medical deduction is allowed for the cost of any controlled substance, including medical marijuana.
  3. If you pay mortgage insurance premiums (PMI), the deduction has been extended through 2016. Unless extended by Congress it will not be deductible in 2017 and beyond.
  4. If you are low income and live in the state of California, you may enjoy the Earned Income Tax credit at the state level this year.
  5. There are 24 other tax provisions set to expire on December 31. As usual, Congress will decide at the last minute whether or not to extend them and allow them as tax deductions on your 2016 income tax return. Waiting until the last minute makes tax planning difficult at best!
  6. If you have foreign bank accounts with balances totaling $10,000 or more at any time during the tax year, you are required to file FBAR. The FBAR is due this year on April 15 rather than June 30 as in prior years. You can request an extension of time to file to October 15, 2017, however, it’s subject to approval.
  7. If you are considering converting from a traditional IRA to a ROTH IRA, you must do so before December 31 in order for it to be counted for the 2016 tax year.

There is plenty more to consider when it comes to your taxes. And there are many more changes than those listed above. Consult with your tax professional to find out if any tax law changes impact your situation. It is also advisable to consult with your tax advisor if you experienced any major life changes this year: marriage, divorce, sale of a home or other property, new job, move to a different state, etc. A tax planning session now can minimize shock on April 15.

Warning: the newest fraud attempt is a phony IRS letter – a CP2000. The CP2000 is a valid IRS letter that is sent to taxpayers who neglect to report certain pieces of income on their tax returns. The IRS picks up these items from third party reporting documents such as W2s, K-1s, and 1099s. Then via its matching program it checks to ensure this income has been reported. If it has not, its computer generates the CP2000 letter which includes a bill for recalculated taxes.

These fraudsters copied the IRS logo perfectly; they even use the same font in writing the bogus CP2000 letter. It looks completely legitimate. The letter tells you that you left off some income from your tax return. The tax liability is then recomputed and you are billed for the resulting tax, interest and possibly a penalty. The amount is relatively small – usually less than $500. You are directed to write a check “payable to the IRS” and mail it to a post office box. And this is exactly how you know the letter is phony. If the letter were real, you would be told to make out the check to the “Department of the Treasury” not the “IRS.” if you receive such a letter, take it to your tax pro and report it to the Internal Revenue Service by scanning it and attaching it an email addressed to

Bonnie Lee explains a 1031 Exchange in the Realized article “Is a Reverse 1031 Exchange Right For You?”. Check it out!

I received the following question:

Bonnie the news outlets are reporting that Trump may have gotten away with not paying taxes for 18 years. Is this a loophole or the IRS not doing there (sic) job?

Loophole. if you suffer a Net Operating Loss and it’s not absorbed in the current tax year, you can carry back the loss 2 years then carry forward any remainder into future years for up to 20 years. Little guy can do it too. So say you start a biz, and use up all your savings to get it off the ground but you don’t make any money for the first 5 years. in fact, your expenses exceed your income by say $50,000. But you have no other taxable income because you are living off withdrawals from your savings account and maybe your family is helping you out – none of that is taxable. So your income tax return shows negative income of $50,000. To encourage biz, the IRS allows for the carrying of that income back two years to when you were making money. You basically redo your tax return using form 1045 and subtract that $50,000 from the income for the two years prior and get a refund of the taxes you paid that year. if you don’t use up all the loss in that year (maybe you only made $30,000 that year so you have $20,000 leftover) then you keep carrying the loss to subsequent years until you use it up.
I would love to hear your opinion of this tax law. Write to me at


Some Facts About Hilary’s 2015 Income Tax Return:

Hilary Clinton has made public her income tax returns. I’ve reviewed her 2015 income tax return which is filed jointly with her husband Bill Clinton. The Clinton’s derived most of their income from self-employment activities – speech making and book sales. Only a modest amount of income was earned from passive activities – interest. No dividends or capital gains. Therefore, they did not have the advantage of the capital gains rate. In fact, due to having to also pay the self-employment tax, their effective tax rate was 35.2%.

Income: Total income for the year is $28,336,212 and is comprised of:

  • $25,171 of interest income from six bank accounts held at JP Morgan Chase Bank as well as $464 interest earned from tax refunds.
  • $93 in W2 Wages for Bill from the Deb Talent Agency. I wonder what that was about.
  • $69,557 in state income tax refunds. Because state income taxes are deducted as an itemized deduction, any refunds must be included in income in the subsequent year. This is likely a declaration of their refund from 2014.
  • $28,020,811 net self-employment income earned from speaking engagements and sales of books. The expenses deducted looked in line with the type of business reporting. Bill Clinton paid wages as well as a benefit package to his employee(s). Their largest expense was commission payments to the Harry Walker Agency. Bill took a home office deduction. He is entitled to deduct a pro rata share of utilities, repairs and maintenance, property taxes, homeowner’s insurance, mortgage interest, etc. but instead he deducted only $945 in depreciation.
  • $3,000 capital loss carryforward from prior years. There were no capital gains transactions on the current year tax return; they did not play the stock market. However, their total capital loss carryforward was $702,540. At three grand a year that will take a long time to be absorbed. However, if they have future capital gains, the loss will be applied against those gains before any tax is levied.
  • $223,580 from pensions and other retirement vehicles; the main pension pay out was from GSA (Bill’s retirement pay from his presidency).


Deductions: The Clintons filed Schedule A with their income tax return claiming itemized deductions of $5,159,242, rather than taking the standard deduction. The deductions claimed were:

  • $2,819,599 paid in state income taxes
  • $104,303 paid in real estate taxes
  • $41,883 in mortgage interest on their principal residence
  • $3,022,700 in charitable contributions. $3,000,000 was donated to the Clinton Foundation, $2,500 was donated to St. Stephen’s Armenian Apostolic Church, $200 was donated to Hot Springs High School Class of ’64, and $20,000 to First United Methodist Church
  • No deductions were claimed for investment advice or tax preparation fees likely because the deductions would not exceed the 2% of AGI (adjusted gross income) ceiling. Also no deduction was claimed for vehicle registration fees. No deduction was claimed for medical expenses. Even if they incurred medical expenses, the ceiling is 7.5% of AGI for those aged 65 or older.

Please note: I am neither endorsing or denouncing any Presidential candidate. I am simply attempting to explain the implications of their promises about tax reform.



Donald Trump has sketched out a tax plan that he promises “will reduce taxes for everyone.” Individual rates will be trimmed to three brackets: 12%, 25%, and 33% replacing the seven current rates of 10%, 15%, 25%, 28%, 33%, and 39.6%. According to his plan, those in the lowest bracket will pay an additional 2 points or 20% while those in the highest bracket will enjoy a reduction of 6.6 points or a decrease of 18%. This is hardly a reduction “for everyone.” It appears the top one percent will benefit rather than those in the middle or lower income levels.

At the top of the list was the eye-catching promise to reduce corporate rates to 15%. Interesting. Only three points higher than the projected lowest rate for low income individuals. And the same basic rate (although thanks to Obama it could be at 20% depending on various factors) for capital gains. Capital gains tax is levied on stock and other asset profits, interest, and dividends, which is the main form of income for the wealthy. This is why Romney as well as many others in the top one percent enjoy an effective tax rate of only 13.6%.

Hardly seems fair does it?

Well, Trump believes a 15% corporate tax rate will stimulate the economy. Trickle down and all that. But historically, tax breaks for big business have only increased the gap between the top one percent and the lower income classes. Think about it; are you feeling the trickle down?

‘Stimulating investment’ by lowering taxes for the wealthy is the mantra of the wealthy. Does anyone really buy this? I’m no economist, just a lowly tax professional, but c’mon, common sense dictates that tax considerations are not the chief motivating factor in making investment decisions. The primary consideration is “Am I going to make money off this venture?” Tax implications come into play only when projecting net gain or loss. Let’s face it; the rich will always be investors. The tax rate is not the end-all for making that choice. What else are they going to do with their money? Sit on it? Only a few eccentrics will choose to hide their money in a mattress or stick it in a low paying bank account. The rest will play the stock market, develop real estate, buy bonds, become part of the Shark Tank, going for the bigger returns. If these investors make a hundred thousand dollar profit, they will pay taxes on it. Why should they enjoy paying a mere 15% on that profit while every other American making the same amount or less working for the man pays their taxes at a much higher rate?

Ultimately, it is Congress, not the President that determines changes to or creation of tax law.

Perhaps Congress should consider eliminating the capital gains tax rate and charge those profits according to the tax brackets for ordinary income. Perhaps they should leave corporate taxes at a max rate of 35% and get rid of corporate loopholes that allow larger corporations to pay zero. And maybe Congress should lower the tax rates for the middle class who seem to bear the brunt of the tax obligation. Maybe it should be our turn. Shall we call it the “trickle up” effect?




Happy New Year! We extend our best wishes to you for a healthy, happy, and prosperous New Year.


Tax season is here! The IRS has already begun accepting electronically filed tax returns for corporations and partnerships. On Tuesday, January 19th they will begin accepting electronic filing of individual income tax returns. When calling for pricing, make sure you provide a complete listing of the schedules we prepared for you to get an accurate comparison.  This listing is available on our invoice.


The tax extenders bill passed legislation in December resulting in $650 billion in tax savings. More than 50 tax extenders were approved, 22 of which were made permanent. Permanency of a tax law is a good thing! It takes the guesswork out of year end tax planning, as these extenders are always left to December for renewal. Some of the more common extenders that may apply to your situation include:

  1. the Earned Income Tax Credit,
  2. the Child Tax Credit (CTC),
  3. the American Opportunity Tax Credit,
  4. the deduction for classroom expenses used by teachers
  5. the deduction for state and local sales taxes,
  6. credit for solar electric property and qualified solar water heating property extended to 2021.

Low Income: California has passed a bill to provide an earned income tax credit for low income individuals with children.

Five tax incentives for charitable giving are in the bill, including a provision that allows individuals that are at least 70.5 years old to exclude distributions to charities from their Individual Retirement Accounts. This will be helpful for you if you do not itemize deductions. Contact us for more details.

A number of business tax breaks are extended without an expiration date, including the research and development tax credit, the increased maximum amount that businesses can immediately expense for property described in section 179 of the tax code, which is increased to $500,000. This deduction is good on new and used equipment, as well as off-the-shelf software. This limit is only good for 2015, and the equipment must be financed/purchased and put into service by the end of the day, 12/31/2015.

The due date for filing returns is moved to April 18 this year. If you cannot meet the deadline, contact us to file an extension for you. REMEMBER: an extension is only an extension of time to file, not time to pay. If you anticipate owing taxes, you must pay them with the extension form by April 18.

If you have questions about any tax issues, please give us a call.

The holiday season is upon us but before you go into party mode, sit back a moment and reflect upon your year. Financially, that is. Especially if you encountered a lot of financial changes – lost a job, got a new job, bought a house, sold a house, moved, got married or divorced, had a baby, went back to school, took an early distribution from a retirement plan, started a business or closed a business – then you need to crunch those numbers and see what kind of tax liability has been created. After all, better to know now than have that deer-in-the-headlights look in your eyes next April 15. And because the year isn’t over, you may likely counter some of the damage with additional tax planning to staunch the bleeding.

And who knows? After compiling your data, you may be pleasantly surprised. Maybe a financial event has gone in your favor tax-wise and you may be anticipating a refund.

Whatever the case, a projection of your anticipated liability is in order which may involve a visit to your tax pro. A review of your numbers might elicit some excellent advice for warding off the tax man and minimizing your tax liability.

Some things to consider:

  1. If you lost a job or changed jobs sometime during the year, your annual income may have increased or decreased and should be examined to determine if proper withholding has accumulated. Also, you may have been receiving unemployment benefits for part of the year. Did you know that these benefits are taxable income at the federal level? Yes, that’s right; they kick you while you’re down. They may also be taxable at the state level, depending on your state’s tax laws, but usually not. If you elected for federal withholding from your benefits, you may be okay. Otherwise, plan on paying additional taxes on the amount you received. Discuss this and the job change with your tax professional. A benefit in your favor is that all job seeking expenses and continuing education costs to improve existing skills are tax deductible if you are able to itemize deductions. If you moved because of a job, you may be able to deduct moving expenses.
  2. Buying or selling a home can affect your tax situation. Buying a home is always good news. Not only do you have the benefit and pride of home ownership but the transaction results in numerous tax deductions you didn’t enjoy as a renter. Any points (loan origination fees) paid is deductible. Mortgage interest, mortgage insurance (PMI), and property taxes are deductions that will save you money on your tax bill. Selling a home can result in a taxable capital gain if you didn’t live there two out of the last five years or if your profit exceeded $250,000 (single) or $500,000 (married filing joint). Ask your tax pro to analyze the bottom line and educate you on all the qualifiers to determine if your profit will be excluded from taxable income and if not, to learn how much you will owe so you can plan for it.
  3. Changes to your family structure can greatly affect your tax picture. If you marry, you gain another exemption. But you also gain this individual’s tax situation. It is always advisable to sit down with your tax pro to go over the pros and cons of filing jointly or separately and to determine the resulting tax liability if you were to combine your income and deductions. Having a child results in an additional exemption as well. Other tax benefits include the child tax credit and the dependent care credit. If you are in a low income tax bracket, you may receive a larger refund due to the Earned Income Tax Credit (EITC).
  4. If you went back to school last year, you will likely qualify for American Opportunity or the Lifetime Learning tax credits. If the schooling was in the form of continuing education to improve your current job skills, the costs associated with the training is deductible. Please note that any education costs to train you for a new position entirely are not deductible but if the education is pursued at a qualifying institution, you may enjoy one of the education tax credits.
  5. If you took an early distribution from your retirement plan, did you ask for taxes to be withheld? If not, review the numbers with your tax pro to determine the tax liability resulting from this transaction. Many people think that having withholding at the source automatically covers the additional tax liability but beware! This is not the case. Typically, the fund manager, upon request, will withhold 20%. But what if you are in a higher tax bracket? Not only that, but if you took the distribution prior to age 59 ½ and there are no exceptions to exclude the penalty, be advised that you can add another 10% penalty for early withdrawal. And don’t forget the state. If you live in a state that levies income tax you may be subject to state taxes and penalties as well. With the highest tax bracket at 39.6%, the tax liability including penalties could be more than 50% of the amount distributed to you.
  6. If you started or closed a business, I sincerely hope you ran straight away to your tax pro. If you are new to self-employment activities there is a lot to learn when it comes to pleasing Uncle Sam. The IRS Website provides plenty of information on this topic. Read up prior to visiting your tax professional. Not only will you receive free intel but you can subsequently compile a list of questions to pursue. Closing a business can result in a tax obligation. But generally if you are operating as a sole proprietorship, you needn’t worry about that.

Right now is an excellent time to contact your tax professional. Final extensions for the year were due October 15, so your tax pro has had time to unwind and is not enduring as hectic a schedule.  There is still time to implement a tax plan with the very little time we have left in this year.  Once you have that out of the way… Party on!

If you have children, you will be happy to learn that the tax code favors you. Whether you are single or married, there are benefits for folks with offspring. The child tax credit gives you a nice break of $1,000 per child subtracted from your tax liability. The Dependent Care Credit and the Earned Income Tax Credit for low income filers, which was enhanced several years ago to cover three or more children rather than two, provides even more of a tax break.

Here are some other tips parents should know:


  1. Check your filing status. Years ago my masseuse asked me to look over her tax return. “It’s odd; I’ve never had to pay before. I’ve always gotten a refund. This year my CPA says I owe two grand; that’s how much I usually get as a refund. There’s not much difference between my income this year and last year.” After reviewing the return, I realized that the problem was filing status. She was listed as single rather than head of household. Not only is the tax bracket higher for single, but a single filing status blew her out of the water for enjoying the Earned Income Tax Credit. Correcting her filing status provided her with a refund of $2,600. That’s quite a swing. If you are a single parent and your child is away at college and you pay for more than 50% of her support, you may still take the head of household filing status because the child’s absence is considered temporary.


  1. File first. If you suspect your ex will try to take your kid(s) as dependent(s) when you are entitled to the deduction, file your taxes first. The IRS will not get in the middle of a domestic dispute. Whoever files first gets the deduction. If the later-filing party is entitled to the deduction, he or she will have to make a case for it.


  1. Proof of Dependency. In conjunction with #2 above, keep important information relating to the validity of deducting your dependent in your tax file. This includes paperwork such as school records which show the child lived at your address and records to prove that you provided more than 50% of the child’s support.


  1. Dependent Care Credit.  You may accumulate up to $3,000 in child care expenses for each child under the age of 13. The maximum credit has been increased from 30% to 35% of total expenses. At year end ask your child care provider for a statement showing how much you paid. You must have the provider’s federal ID number or social security number and address in order to take the Dependent Care Credit. This credit also applies to a spouse or other dependent over the age of 13 that is incapable of self-care.


  1. Track alimony payments. This is taxable income for the recipient and must be reported on your income tax return. By the same token, alimony you pay to a former spouse is a tax deduction as long as it is court ordered. Child support is not taxable income to the recipient nor is it deductible for the one who pays it. Keep that in mind if you are getting a divorce so that support issues are structured fairly in the marital dissolution agreement.


  1. Tuition. Tax credits are available if you pay tuition to a qualified higher learning institution. Payments for books, computers, and fees also qualify for the credit. Room and board do not. Naturally, there are income limitations. It often works out to this: if you can afford to pay for your kid’s college education, you don’t qualify for the credit. Tuition for private schools for K-12 does not qualify for the deduction.


  1. Tutoring. If your child is diagnosed with a learning disability and special schooling or tutoring is required, you may be able to deduct those fees as a medical expense. Check with your tax pro. You will need a letter from your doctor to substantiate the deduction.


  1. Adoption Credit. Taxpayers who incur qualified adoption expenses may be eligible for this credit or, in the case of employer-provided assistance, an exclusion from income. In other words, it can qualify as a nontaxable fringe benefit. The dollar limitation of the credit has been increased to $13,190 per child for 2014.


  1. Employer-Provided Child Care. Employers that provide child care facilities may be eligible for a tax credit equal to 25% of qualified expenses plus an amount equal to 10% of qualified expenses for child care resource and referral services. The credit caps at $150,000 of annual qualified costs.


The Valley Fires in Middletown have wreaked havoc upon the landscape. We lost our home in Middletown and so did many of our friends.

The area has been declared a National Disaster area. According to a press release I received from FEMA, “the Regional Administrator for FEMA Region IX Office determined that the Valley Fire threatened such destruction as would constitute a major disaster. California’s request was therefore approved on September 12, 2015 at 21:30 PDT.  Fire Management Assistance Grants provide federal funding for up to 75% of eligible firefighting costs.”

And help is on the way from the Internal Revenue Service as well. The IRS has always gone to bat to help taxpayers affected by disasters. For one thing, filing deadlines are generally extended. I anticipate the October 15, 2015 deadline for filing 2014 individual income tax returns will be extended likely to January 15, 2016, though at this late date, nothing has come down yet.

Many who lost their paperwork to the fires will need time to reconstruct their data. If you find yourself in this situation, request a transcript of your tax documents from the Internal Revenue Service. Your W2s, 1099s, K-1s and other third party documents have been provided to the IRS and are available to you. You can make the request online at IRS Website – Get Transcript.

For data not provided to the IRS, such as payments you’ve made for property taxes, DMV fees, charitable contributions, medical expenses, and deductions, get copies of your bank statements to retrieve the amounts paid.

If you are self-employed, perhaps your data is being safely stored in the Cloud or in an on-line version of accounting software. If not, you will need to reconstruct your books to create a profit and loss statement suitable for reporting on your tax return.

There are specific guidelines in place to help those residing in the Middletown area or for anyone involved in a declared federal disaster. Refer to IRS Publication 547 to discover what you need to know with regard to your loss and your taxes.

Highlights from this publication specific to federally declared disasters:

Timing: Normally, you write off your losses in the year it occurred. “However, if you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to deduct that loss on your return or amended return for the tax year immediately preceding the tax year in which the disaster happened. If you make this choice, the loss is treated as having occurred in the preceding year.”

The reason the IRS allows this is because the loss will lower your tax liability for the previous tax year thus generating a refund which can be used to help rebuild.

Profit: If a reimbursement from your insurance company to repair or replace your main home results in a capital gain (ask your tax pro to crunch the numbers), you will be allowed to postpone the capital gain if you use the money to repair or replace that main home. Naturally, this break is fraught with rules so check out the section under “Gains Realized on Homes in Disaster Areas” in the Instructions for Form 4684.

Home made unsafe by disaster. According to Publication 547 “If your home is located in a federally declared disaster area, your state or local government may order you to tear it down or move it because it is no longer safe to live in because of the disaster. If this happens, treat the loss in value as a casualty loss from a disaster. Your state or local government must issue the order for you to tear down or move the home within 120 days after the area is declared a disaster area.” Here again, it is a good idea to ask your tax professional to crunch the numbers to accurately determine your loss. It will be reported on Form 4684.

My thoughts, and prayers go out to those who have lost everything.

From time to time every taxpayer will go head to toe with the Internal Revenue Service. Whether you are setting up an installment agreement, facing the auditor from hell, resolving a misunderstanding, or dealing with collectors on the phone or worse yet, on your doorstep, please heed the following suggestions.

1. You get more flies with honey. Remember what Mom used to say! Dealing with bureaucracy can be very frustrating. Especially now when the IRS has experienced so many budget cuts that customer service is at an all time low. Blame Congress not the overworked agent on the other end of the line. Park your bad attitude and anger at the door. Take a deep breath, demonstrate a cooperative attitude, and proceed in an orderly fashion. This will give you an advantage in resolving your issue. In my long career of dealing with the IRS, I have found that most IRS personnel are compassionate humans that will bend over backwards to find ways to resolve issues and help taxpayers. It’s true! It’s not like you won’t ever run into that power-hungry, condescending, or surly agent from time to time. If you do, you can always trade up to a more understanding and respectful model. Just ask for the manager.

2. Use IRS lingo. When you use IRS lingo the person you are speaking with will find you knowledgeable and may treat you with a little more respect. Here is some verbiage you may find useful:
a. Ask for penalties to be “abated” rather than removed.
b. Tell them, if it’s the case, that your failure to (pay or file or comply with a document request) was due to “reasonable cause.” Use this term if you didn’t just flake and have a good reason, which could include such things as unemployment, losing your records, losing your home, health problems, etc.
c. If you can’t pay a tax bill because you are suffering financial reversals you can ask to be deemed “Currently not collectible.” If you are granted this status, they will leave you alone while you get it together.
d. If you feel a spouse or former spouse should be responsible for a tax matter, ask to be treated as an “Innocent spouse.” There are certain criteria to determine if you qualify for this status. Do some research or discuss the issues with your tax pro to find out if you qualify. Because if you do, the IRS will not attempt to collect from you and instead will go after your former spouse.
e. If defending business deductions during an audit, the term “ordinary and necessary” business expense will help – but only if that’s really the case.
f. If you owe a lot of money, perhaps you qualify for the “Fresh Start” program. This program helps taxpayers resolve their liabilities by using more lenient guidelines.

3. Don’t talk too much. IRS agents are trained to draw as much information from you as possible. Answer questions truthfully, but keep your answers short, succinct, and to the point. There is no need to elaborate or discuss your personal life or disclose too much. This will only lead to misunderstandings and possibly investigations.

4. Always tell the truth. Lies have a way of uncovering themselves. Once you are caught in a lie, you will always be suspect. And when you are suspect, you lose the cooperation you would normally receive. Don’t hide assets, don’t run for cover. There are many ways to resolve tax problems using a straightforward and honest approach. Bear in mind that lies can lead to jail time.

5. Only make promises you can keep. This is especially true when it comes to paying your liability. If an IRS agent asks you if you can pay $200 per month on a tax balance and you know damn well that you can only afford $100, tell him so. Indicate that you will try to pay extra when you can. But you are not going to set yourself up for failure by promising more than you are able. If it’s the case, then add that you have always timely filed and paid liabilities in the past and now you need a break. Note that this will not work if their analysis of your financial situation indicates you can pay more.

6. Go to them before they come at you. If you are unable to keep a promise you make, call them and let them know immediately. They are usually so happy with the cooperation they will likely grant you the extensions you need. The collections department notes your file whenever you or your representative calls.

7. Stop the Interview. If at any time during an audit or a phone conversation you feel intimidated, disrespected, or out of your depth, simply say so and end the interview. Tell the IRS that you will be seeking representation and will get back with them soon. This will give you a chance to take a deep breath and discuss the matter with your tax pro. If you felt disrespected, you can always request a different agent. Or if it was a matter of a surly customer service rep you were speaking with on the phone, you can back in hopes of getting someone kinder or a little more understanding.

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© Taxpertise | Bonnie Lee, E.A. | Ph: 707.935.1755, ext 1 Fax: 707.938.1891 | 450 2nd Street West, Sonoma, CA 95476