A Roadmap to Tax Resolution

A Roadmap to Tax Resolution

What to Expect When Resolving Your Tax Debt

Many of our clients who retain our tax relief services are interested in knowing two things:

1) Can you settle this for less than I owe; and 2) How long will this take?

Upon retaining our firm to resolve your tax issue, some of the relief will be immediate and some will be over time. It is important to keep in mind that IRS problems didn’t come about overnight and will take time to resolve. The good news is that generally you won’t have to meet or speak with the IRS while we are representing you. An average Offer in Compromise (OIC) case can take anywhere from 6-12 months (or longer) depending on the amount of tax liability owed, the complexity of the case, and your individual facts and circumstances.

Road Map to Resolution

Free Consultation: If you have never been a client of ours, the first step is to call for your confidential, no obligation free consultation. At this meeting, an experienced tax resolution consultant, CPA, Attorney or Enrolled Agent will evaluate your situation and discuss all available options for resolving your matter. This generally takes about 30-45 minutes; however, there are times where the information provided at this meeting is not sufficient to determine a course of action. It is advised therefore to have all recent notices and correspondence from the IRS available during our first telephone consultation. The first step is to hire us to obtain your IRS transcripts and Record of Account so we can best evaluate all of your alternative settlement options.

 

1. Retaining Our Firm:

At the end of your consultation, and if selected as a good “fit” for our firm, you will be given the opportunity to retain us as your tax representative. You will be required to sign an Engagement Letter and make financial arrangements in order to pay for our tax help services.

We will file a Power of Attorney (POA) with the IRS. This will provide you with immediate relief because We will attempt to get a collection hold (no enforced collection) on your account and from this point forward, the IRS will be required to contact us instead of you. If an IRS representative should happen to contact you, all you need to do is provide our contact information, including phone number, and politely request that he or she contact “Coeur d’Alene Accounting & Tax Resolution” directly. A separate POA will be required for any state problem you have retained us for as well.

 

2. Beginning the Tax Resolution Process:

You will be assigned a case manager who is in charge of your case. All of our case managers are licensed professionals and are extremely qualified. Our case managers are Attorneys, Certified Public Accountants or Enrolled Agents. Together we will develop a phased strategy for resolving your case and advise you on what steps to take for the most effective resolution.

 

3. IRS Compliance:

Generally, before any negotiation/settlement will be accepted by the IRS, you must become a compliant taxpayer. Compliance means that all past due delinquent income tax returns must be prepared and filed. Compliance also means you have to be “current” on you quarterly estimated income tax payments and you must be withholding at the correct rate if a wage earner. If you cannot furnish records necessary to prepare your taxes, do not worry we have developed an easy method, in accordance with IRS regulations, for completing the preparation of tax returns in order to get them filed right away.

4. Your (the Client’s) Responsibilities:

Clients who achieve successful resolution of their matters have the following traits in common: They view the relationship with us as a collaborative one. They view this as a “project” that requires cooperation. They follow through, on a TIMELY basis, with our requests for information and documentation. Clients who achieve stated resolution goals return our phone calls and emails timely, and stay in contact with us throughout the duration of their case.

5. Tax Settlement Negotiation:

We will propose a plan of resolution to the IRS that you can live with and see through to acceptance. We have an excellent IRS settlement track record rate and pride ourselves in obtaining the best (lowest) settlement for you under the law. It is rare, however, that a proposal is accepted right away. Through diligence, persistence, and follow-up our knowledgeable staff will monitor, provide additional information to the IRS as needed, and negotiate your proposed resolution until a resolution is achieved.

6. Tax Resolution is Reached:

We will review the final resolution of your case by the IRS to make sure it is as agreed upon. If not, we will insist that it be changed to reflect what was agreed to. If the IRS is unwilling to do this, we will advise you as to what your options are for the next step. Finally, you will be advised on what you must do in order to succeed with your resolution and avoid future tax problems.

 

New Meals Deduction Rules for Your Idaho Business

Here’s good news for business meals: the Tax Cuts and Jobs Act (TCJA) removed the “directly related and associated with” requirements from Coeur d’Alene business meals.

The net effect of this change is to subject business meals once again to the pre-1963 “ordinary and necessary” business expense rules.

You are going to like these rules.

 

Restaurants and Bars

Question 1. If, for business reasons, you take a customer to breakfast, lunch, or dinner at a restaurant or hotel, or to a bar for a few drinks, but you do not discuss business, can you deduct the costs of the meals and drinks?

Answer 1. Yes. Even though you did not discuss business, the law provides that if the circumstances are of a type generally considered conducive to a business discussion, you may deduct the expenses for meals and beverages to the extent they are ordinary and necessary expenses.

Consider this “no discussion” meal a “quiet business meal.”

Question 2. What are circumstances conducive to a business discussion?

Answer 2. This depends on the facts, taking into account the surroundings in which the meals or beverages are furnished, your business, and your relationship to the person entertained. The surroundings should be such that there are no substantial distractions to the discussion.

Generally, a restaurant, a hotel dining room, or a similar place that does not involve distracting influences, such as a floor show, is considered conducive to a business discussion. On the other hand, business meals at nightclubs, sporting events, large cocktail parties, and sizable social gatherings would not generally be conducive to a business discussion.

 

Meals Served in Your Home

Question 3. Does a business meal served in your home disqualify the deduction?

Answer 3. No, as long as you serve the food and beverages under circumstances conducive to a business discussion. But because you are in your home, the IRS adds that you must clearly show that the expenditure was commercially rather than socially motivated.

Goodwill Meals

Question 4. If, for goodwill purposes, you take a customer and his or her spouse to lunch and don’t discuss business, will the cost of the lunch become non-deductible?

Answer 4. Not if, in light of all facts and circumstances, the surroundings are considered conducive to a business discussion, and the expenses are ordinary and necessary expenses of carrying on the business rather than socially motivated expenses.

Question 5. Is the situation the same if the taxpayer’s spouse accompanies the taxpayer at a dinner for business goodwill reasons?

Answer 5. Yes, the meal is deductible. This is true whether or not the customer’s spouse is present. Again, the meal must meet the ordinary and necessary business expense standards.

 

Document the Meal Deductions

You need to keep records that prove your CDA business meals are ordinary and necessary business expenses. You can accomplish this by keeping the following:

  1. Receipts that show the purchases (food and drinks consumed)
  2. Proof of payment (credit card receipt/statement or canceled check)
  3. Note of the name of the person or persons with whom you had the meals
  4. Record of the business reason for the meal (a short note—say, seven words or fewer)

 

The costs of your Coeur d’Alene business meals continue to be 50 percent deductible (as they were before the TCJA).

Donation Tax Write-Off Rules

Giving to your church, school, or other 501(c)(3) charity is a noble act no matter how you choose to give.

But for the purposes of tax savings, some forms of giving are much more beneficial to you than others. As a Coeur d’Alene business owner, you can use some business strategies to get the money to these institutions as business expenses.

While this does not change anything from the institution’s perspective, it hugely increases your tax savings.

The Tax Cuts and Jobs Act (TCJA) makes it harder to benefit from your personal donations.

 

Let’s say you donate $10,000 to a church, school, or other 501(c)(3) charity:

  1. Will you get a tax deduction—in other words, will you itemize?
  2. Will you benefit from the entire $10,000 as an itemized deduction? In other words, did the $10,000 simply put you over the hump that beat the standard deduction?
  3. Say you can deduct all $10,000 as an itemized deduction. Would making it a business deduction increase the tax benefit value to you?

 

The TCJA made two big changes that make it less likely that you will itemize. First, the TCJA set a $10,000 limit on your state and local income and property tax deductions. Second, it increased the 2020 standard deductions (adjusted for inflation) to

  • $12,400 for individuals, and
  • $24,800 for married couples filing jointly.

 

Even if you make a big donation, think about the problem this creates—suppose you are married and donate $17,000 to charity. If this is your only itemized deduction, your donation does you no good because it’s less than $24,800.

 

Fortunately, there’s a much more tax-savvy way to give.

As a CDA business owner, you can make a few modifications and convert your church, school, and other 501(c)(3) donations to a different type of deduction—an ordinary business expense—which increases the tax savings that land in your pocket year after year.

To turn a charitable donation into a business expense, the donation has to be involved in some way in promoting your business. In one way or another, you need to prove that your strategy has as its purpose attracting customers and revenue for your business.

 

The tax law rule is that your donation must

  • have a direct relationship to your business, and
  • create a reasonable expectation for a commensurate economic return.

 

Here are four examples of successful business practices that benefit charities and create business deductions:
  1. In the Marcell case, the owner of a trucking company contributed cash to a hospital because he wanted to impress the chairman of the charity drive, who was a potential customer. The court found that Philip Marcell had a reasonable expectation for a commensurate return on his donation and treated the contribution as a business expense.
  2. ABC Company attaches rebate slips to some of its products that it sells to customers. The customers can then present the rebate slips to the charity, at which point ABC Company pays the charity the amount listed on the slip.
  3. In Revenue Ruling 72-314, the IRS ruled that the stockbroker corporation that paid 6 percent of its brokerage commissions to the neighborhood charity could deduct the payments as business expenses because there was a reasonable expectation that the arrangement with the charity would direct new business to the brokerage and help retain existing business.
  4. Sarah Marquis, a sole-proprietor travel agent, made payments to charities on the basis of business they did with her. She had 30 charities as clients, and those 30 charities accounted for 57 percent of her CDA business.

 

Important Tax Complications of Renting Your CDA Home

You must consider the Coeur d’Alene vacation home rules when you:
  • rent a bedroom in your home and also use it personally, or
  • rent your beach home (or any other home you own) and also use it personally.

 

Personal Use of the Dwelling

Rent or use by relatives. Personal use includes more than meets the eye. You have personal use of a dwelling when you rent to or allow use by a relative. The rent charged makes no difference.

 

Paying and non-paying relatives who use your Coeur d’Alene vacation home complicate your deductions. Such use by your relatives is personal use by you. The relatives who come with this personal-use taint include your

 

  • mom and dad,
  • brothers and sisters (whole and half),
  • sons and daughters,
  • grandchildren and grandparents, and
  • spouse.

 

Planning tip. Do not rent to the tainted relatives.

 

Co-owners

Co-owners must count both use by their relatives and use by themselves as personal use. Thus, if you own a Coeur d’Alene rental home with others, make sure you know about the personal use by the co-owners and also use by their tainted relatives.

 

Charitable Donations

Charitable donations produce personal use. No matter how much the charitable donor pays for use of your dwelling unit, the IRS counts the charitable use as personal use by you.

If you donate a week of Coeur d’Alene vacation-home use to your school’s annual auction, you have a week of personal use. It makes no difference what the successful bidder pays for that week of use.

Double whammy. Your charitable gift of the right to use your dwelling unit for the week does not produce a deductible contribution for you. The IRS regulations deny a charitable contribution deduction for a gift of the right to use property.

Thus, the charitable gift penalizes you twice. First, the days you donate are days of personal use by you. Second, your donation of the days does not create a charitable deduction for you.

 

Swaps

Swaps produce personal use. Similarly, you have personal use when you swap dwelling units with a friend or under an exchange agreement. Swaps and bargains produce personal days. You count as personal use of your dwelling unit any days that you

  • allow a person to use your unit under an agreement that lets you use another dwelling, whether or not you charge rent; or
  • charge less than fair rent.

 

Example 1. You and Nelson swap one week of vacation-home use. Nelson’s use of your dwelling unit during the one-week swap counts as personal use by you.

Example 2. You and Johnson rent each other’s mountain homes for a week at fair market rent. Johnson’s rental of your dwelling unit during that one week counts as personal use by you.

Example 3. You charge your child’s favorite teacher only 67 percent of the fair rent to use your beach home for a week. The teacher’s use of the beach home counts as personal use by you.

 

Repair Days

Repair days do not produce personal use. Tax law says that you do not use your dwelling unit on days when your principal purpose for such use is repair or maintenance. To qualify the day as a repair day, you must work substantially full-time repairing or maintaining the dwelling unit.

Example 4. You and your spouse arrive Thursday evening at your lakeside cottage after a long drive, but in time for a late dinner at the cottage. You spend a normal workday on both Friday and Saturday getting the unit ready for rental. Your spouse does no work on the house and simply relaxes at the beach.

You depart Sunday, a little before noon. According to the IRS’s examples, your principal purpose for that trip is maintenance. You do not count Thursday, Friday, Saturday, or Sunday as days of personal use. The repair days are non-use days.

Example 5. You own a Coeur d’Alene mountain cabin that you rent in the summers. You spend a week at the cabin with your family. The family members work substantially full-time repairing the cabin. You spend about three to four hours each day during that week helping, and the rest of the time fishing, hiking, and relaxing. According to the IRS, your family’s principal purpose of that week’s stay is maintenance; therefore, the days are not days of personal use.

Again, the repair days are non-use days.

 

Rented Fewer Than 15 Days

Tax-free income. If you rent your dwelling for fewer than 15 days, you do not report the rental income or any rental expenses on your tax return. The income is tax-free. You do not share it with the government.

Planning tip. Do you have an event coming to your area that might command high rents? Examples include a major golf tournament, Olympic event, or other activity that could allow you to rent at a high rate for a short period.

Say you have a summer home on Lake Coeur d’Alene and a major golf tournament comes to town. You rent the home for $10,000 a week for two weeks. You have $20,000 of tax-free income.

 

Personal Residence or Rental?

The amount of personal use determines how you will treat your tax deductions on the dwelling. You have a tax code-defined rental of the dwelling when your personal use is either

  • 14 days or less, or
  • 10 percent or less of the days rented.

Example 6—rental. You rent your resort home 260 days. You use it personally for 26 days. Ten percent of your resort home is a personal home. Ninety percent is a rental property.

Example 7—hobby rental. With 30 days of personal use of the resort home in example 6, you have a residence. Your deductions on the rental part during the current tax year may not exceed your rental income (i.e., you have no tax shelter possibility).

Excess deductions carried forward. When the law deems your dwelling a residence, the deductions attributable to the rental are limited to gross rental income. The good news is that you carry forward the deductions in excess of the gross income limit to next year.

 

Treatment as a Rental Property

If, based on your rental and personal use, tax law classes your Coeur d’Alene summer home as a rental property, you should follow the IRS allocation method to get the best tax breaks.

Personal part of interest lost. If tax law classes your dwelling as a rental property, any mortgage interest allocated to your personal use is non-deductible consumer interest (ouch!).

Passive loss rules. The dwelling classified as a rental property faces the passive loss rules.

Seven-day rule. The dwelling that is a rental under the 14 days and 10 percent tests is not rental real estate under the passive loss rules if the average rental period during the year is seven days or less.

Idaho Business Annual Tax Year Dates

A tax year, “taxable” year is the annual accounting period that your CDA Idaho business uses for determining and reporting tax liability.

The two types are the Calendar Year and the Fiscal Year:
  • A calendar year for tax purposes is: January 1 through December 31.
  • A fiscal year is a tax year that ends at the end of any month except December.1
  • Sole Proprietorship, always uses the calendar year.

Tax due dates:

A Business Entity other than a sole proprietorship may use a fiscal year if it can establish a business purpose. This could be due to its natural business cycle other than a calendar year.