Episode 138: Back taxes 101 & how to get caught up

On this episode I chat with Theresa Speights, tax attorney and manager of resolutions at Community Tax LLC in Chicago, about back taxes and how to get caught up if you have them.

This episode is sponsored by my FREE training: 3 legal & tax mistakes made by new & experienced business owners and how you can avoid them. Sign up for this free Masterclass here, and get ready to unf*ck your biz.

Tax controversy is when you owe the IRS money for various reasons - 401k you took out, rough years in business, etc. It ranges from individuals to big businesses. If you have tax liabilities or owe money to the state or federal government, someone who works in tax controversy can help you work through the debt.

When it comes to microbusinesses, the most common tax problem Theresa sees is usually poor bookkeeping and comingling of business and personal expenses. When you comingle, the IRS views all the money in your personal bank account as business income, even if some of those deposits came from birthday money from Grandma. Things like personal loans to pay off credit cards will be included, and miscellaneous situations like this will be easy to forget a few years down the line when the IRS audits you nor will you have the receipts to prove what was a personal expense at Target and what was business supplies.

Even if you make separate personal and a business transactions at Target on the same day, paying for your business expenses with your business bank account card, it's important to still keep the receipt as proof. A good rule of thumb is to sign up for email receipts to be sent to your business email.

If you are audited, it's recommended that you put your strongest receipts/other documentation in the beginning and end of your response so your strongest proof is reviewed. If you don't have any documentation, you are going to be looking at an appeal instead. For an audit, you always want to have a tax attorney represent you.

When weighing the cost benefit of hiring a professional when facing an audit, it's worth hiring someone if the IRS is looking for $5,000 or more. If it's less, don't even worry about hiring someone. If you do decide to hire someone, make sure you shop around for someone who is thorough and looks through your documents to vet anyone trying to just take your money. If they are not a flat fee, run. Audits take a lot of time, and any company that charges hourly will be much more expensive.

If you've been audited and you know full well you owe that money, at that point you are looking at resolution options to resolve the debt you owe, which will be based on your assets, income, and expenses. You may not need representation if you are going to pay in full, you can set up a streamlined installment agreement with the IRS over the phone or online. You will have 72 months to pay it off. If you can't do it in 72 months, that's when you need to hire a tax controversy practitioner to assist you in getting a payment plan you can afford. A partial-pay installment agreement may be a better option for you if you cannot afford to pay the full amount of the streamlined installment agreement. Another resolution option is an Offer In Compromise. This is based on your assets.

Check out Theresa sharing what to do if you receive a letter from the IRS on episode 137 of the podcast.

Get in touch with our guest

Theresa Speights, manager of resolutions at Community Tax LLC

Check out the Community Tax website

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