Andrew Samaniego | Tax Resolution Blog | CA

Audits

Is the IRS Really After You? Uncover the Truth Behind Their Actions

by Leave a Comment

Tax Debt Destroyers!

With the October 15th deadline for extended 2023 tax returns rapidly approaching—and coincidentally marking my last day as a United States Navy officer—I’ve been knee-deep in tax returns and churning out advice-packed YouTube videos.

Amidst this whirlwind, a recurring question pops up: “Why is the IRS out to get me?” and “I hate the IRS for creating all these tax laws!”

Let’s clear the air.

Who is the IRS, and What’s Their Mission?

First things first, the IRS isn’t a shadowy figure plotting your financial downfall. It’s a key agency of the U.S. Department of the Treasury, tasked with collecting the taxes necessary to fund various government functions.

Their mission? To administer the nation’s tax laws fairly and efficiently, and to collect the proper amount of tax revenue.

Where Do Tax Laws Come From?

Here’s a kicker many folks miss: the IRS doesn’t create tax laws.

That’s the job of Congress. The IRS simply enforces them.

So, when you’re fuming about tax laws, remember your issue might be more with legislative decisions than with the IRS itself.

Enforcement: Not as Personal as It Feels

Yes, the IRS enforces tax laws, which means they collect what’s due, follow up on non-filings, and yes, they do audit. But here’s the deal—it’s not personal. It’s procedural.

The IRS uses automated systems to flag discrepancies. If you’re feeling targeted, it’s likely because something in your tax filings triggered a flag in their system.

So, Is the IRS Out to Get You?

Short answer: No.

They are out to ensure compliance. If you’re compliant, you’re not on their radar for the wrong reasons. But if you owe back taxes or haven’t filed, it’s like waving a red flag saying, “Check me out.” That’s not them targeting you out of malice; that’s them doing their job.

What Can You Do About It?

Don’t panic. Get informed. Visit CrushIRSAnxiety.com to download our free e-book. It’s packed with insights into navigating IRS interactions, understanding your rights, and effectively managing or disputing your tax responsibilities. Knowing what triggers IRS actions and how to respond can transform fear into confidence.

Remember, understanding your adversary—in this case, the IRS—is key to a successful strategy. Whether you’re wrestling with back taxes or just trying to stay compliant, knowledge is your best defense.

And hey, don’t forget to check out my latest YouTube video for more detailed insights on how the IRS operates and what you can do to stay off their radar!

Andrew Samaniego, EA, CTRC, MSCTA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com

Defending Your Schedule C Against ‘Hobby Loss’ Challenges

by Leave a Comment

Happy Monday, Debt Deck Swabbers! Today, let’s dive into a topic as tricky as a deflated air mattress on a cold camping night—navigating the murky waters of IRS ‘hobby loss’ challenges on your Schedule C. But first, a quick tale from the great outdoors…

Last weekend, Kanoe and I set out for what promised to be a refreshing camping trip in the mountains of eastern San Diego. We were all set for a night under the stars—burgers, campfire, smores, and the sounds of nature all around. But fate had other plans. Just as we settled in, we discovered our air mattress had deflated, thanks to an unlucky puncture. Instead of enduring a miserable night, we chose to pack up and head home, ready to try again another day.

This brings us to our main discussion: what do you do when the IRS challenges your business expenses on Schedule C as not being legitimate business expenses but rather, hobby expenses? Like our camping mishap, you can either suffer through it, hoping it goes away, or take proactive steps to ensure you’re on solid ground.

What is a ‘Hobby Loss’?

The IRS scrutinizes business claims, especially on Schedule C, to determine if they’re genuinely aimed at making a profit or are just hobbies. Under the so-called ‘hobby loss’ rule, expenses from activities not engaged in for profit cannot be used to offset other income. This can be a major issue for small businesses and freelancers whose business intentions are questioned by the IRS.

How to Defend Your Schedule C

1. Prove Your Profit Motive: The key to defending against a hobby loss challenge is to demonstrate a clear intent to make a profit. This includes maintaining accurate books, having a business plan, and adjusting strategies to increase profitability.

2. Documentation is King: Just as you would map out a camping trip, map out your business activities. Keep meticulous records of all expenses, receipts, and logs of business activities. This documentation can be crucial in proving the legitimacy of your expenses.

3. Separate Business and Pleasure: Ensure that your business finances are completely separate from personal expenses. This clear separation helps reinforce the legitimacy of your business.

4. Educate Yourself on IRS Expectations: Understanding what the IRS looks for in distinguishing a hobby from a business can give you an upper hand. Typically, if an activity makes a profit in at least three of the last five years, the IRS presumes it’s carried out for profit.

5. Seek Professional Help: Navigating IRS regulations and defending your business can be complex. Partnering with an Enrolled Agent who specializes in tax resolution can provide you with the expertise needed to effectively defend your Schedule C.

Ready to Take Action?

Don’t let IRS challenges deflate your business ambitions. If you find yourself facing a ‘hobby loss’ challenge or need help ensuring your business is IRS-proof, it’s time to act. Visit AndrewSamaniego.com to schedule an appointment with a firm that specializes in tax resolution. Just like deciding to pack up and head home instead of enduring a bad situation, choosing to seek professional help can be the fresh start your business needs.

Remember, sometimes the best way to deal with a setback is to regroup and come back stronger. Let’s get your business on firm footing and keep it moving forward, no matter what challenges you face.

Andrew Samaniego, EA, CTRC, MSCTA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com

IRS Collection Notices Decoded: What They Really Mean

by 1 Comment

If you’re like thousands of Americans who’ve received a letter from the IRS this year, you might be scratching your head wondering what it all means—especially if you haven’t filed your taxes in the past few years. These notices can be daunting, cryptic, and honestly, a little intimidating. But fear not, I’ve broken down some of the most common IRS collection notices to help you understand exactly what they’re telling you and what you need to do next.

Understanding Your IRS Notice

First off, don’t panic. Each notice has a specific purpose and a specific response required. Here’s a cheat sheet to some of the most common notices people receive:

  • CP 09: You might be entitled to the Earned Income Credit. Good news if you’re eligible!
  • CP 10: Changes to your tax return have reduced the amount applied toward your estimated tax payment.
  • CP 11: Changes to your tax return show that you owe a balance.
  • CP 11A: Changes to your tax return and Earned Income Credit show that you owe a balance.
  • CP 12: Changes to your tax return resulted in an overpayment. You might get a refund.
  • CP 13/CP 13A: Changes to your tax return with no refund or balance due.
  • CP 14: You owe a balance, but there’s no math error.
  • CP 16: Changes to your tax return mean an overpayment was applied to another balance you owe.
  • CP 21B: A data processing adjustment resulted in an overpayment of $1 or more.
  • CP 22A: A data processing adjustment shows a balance due of $5 or more.
  • CP 22E: Examination adjustment notice indicates you owe a balance.
  • CP 23: There’s a discrepancy in your estimated tax payment, and you owe a balance.
  • CP 32A: The IRS wants to send you a new refund check.
  • CP 45: A reduced amount was applied toward your estimated tax payment.
  • CP 49: Overpaid taxes were applied to other taxes you owe.
  • CP 54B/CP 54E/CP 54G/CP 54Q: There’s a problem with your name and identifying number.
  • CP 59: This is the first notice requesting your tax return.
  • CP 75/CP 75A/CP 75B: Your Earned Income Credit portion of the refund is delayed.
  • CP 79: You need to meet an Earned Income Credit eligibility requirement.
  • CP 79A: You face a two-year ban on the Earned Income Credit.
  • CP 90/CP 297: Final notice of intent to levy and your right to a hearing.
  • CP 91/CP 298: Final notice before levy on Social Security benefits.
  • CP 161: A balance due notice requesting payment or informing you of an unpaid balance.
  • CP 501: A reminder notice that you owe a balance.
  • CP 504: An urgent notice that you owe a balance.
  • CP 523: Notice of intent to levy because you defaulted on your installment agreement.
  • CP 2000: Notice of underreported income.
  • Letter 531: Notice of deficiency.
  • Letter 525: Examination report.
  • Letter 12C: Information request.

These notices are just the tip of the iceberg. Each one requires a specific action and carries implications for your financial well-being.

Why It’s Critical to Respond

Ignoring these notices can lead to more than just annoying reminders—it can lead to garnished wages, seized bank accounts, and a serious financial headache. The key to handling these notices is to respond promptly and appropriately. This might mean paying a balance, filing a past return, or even disputing an error by the IRS.

How to Handle These Notices

  1. Read Carefully: Understand exactly what each notice is saying and what it’s asking of you.
  2. Verify Everything: Check their information against your records. Errors on IRS notices aren’t unheard of.
  3. Take Action: Whether it’s paying a balance, filing a return, or contacting the IRS to clarify a misunderstanding, the most important step is to take action.

Get Help if You Need It

Navigating the maze of IRS communications can feel like decoding a foreign language. If you’re feeling overwhelmed, it might be time to call in a professional. This is where tax experts shine—they can help you respond to notices, negotiate with the IRS, and ensure that your rights are protected.

Ready for More Insights?

If you’re dealing with IRS notices and want more detailed guidance, check out my e-book at CrushIRSAnxiety.com. It’s packed with strategies to help you manage your tax issues effectively and reduce your stress levels. Download it today and turn your tax turmoil into triumph!

Remember, the worst thing you can do when you receive an IRS notice is nothing. Take control of the situation, educate yourself on what the notices mean, and take the necessary steps to resolve them. You’ve got this!

Andrew Samaniego, EA, CTRC, MSCTA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com

The Cohan Rule: How This 100-Year-Old Case Still Saves Taxpayers Today

by Leave a Comment

Do you know what grinds my gears more than a mandatory sprint? Bookkeeping. Just yesterday, after panting through my annual Physical Readiness test (which I absolutely loathe), it struck me how similar my feelings are towards keeping meticulous financial records. But like running, it’s a necessary evil, especially if you’re a business owner gearing up for tax season.

However, let’s face it—sometimes life throws a wrench in our plans. Documents get lost, receipts fade away, or, heaven forbid, a disaster wipes out all our meticulous records. What then? Do we just roll over and let the IRS have its way with us? Not quite, thanks to a century-old lifesaver known as the Cohan Rule.

What is the Cohan Rule?

Cast your mind back to 1920s America. George M. Cohan, a legendary Broadway figure (you might know him from the song, “Give My Regards to Broadway”), found himself in hot water with the IRS. Despite his success, Cohan was no fan of detailed record-keeping. When audited, he lacked the documentation to support his claimed business expenses.

But instead of folding, Cohan fought back, and his case went all the way to the United States Court of Appeals. In a landmark decision, the court ruled in favor of Cohan, essentially stating that when a taxpayer can convincingly show that qualified expenses occurred, the IRS should estimate the allowed deduction rather than deny it outright just because specific records are missing.

Why Does the Cohan Rule Matter to You?

If you’ve skipped filing your taxes for the past few years and are now in a scramble to get your affairs in order, the Cohan Rule could be your unsung hero. Here’s why:

  1. Flexibility in Deductions: The Cohan Rule allows for tax deductions based on reasonable estimates if you can demonstrate that you genuinely incurred the expenses. This means that even if your record-keeping was less than perfect, you might still salvage significant deductions.
  2. Reducing Tax Liability: By enabling you to estimate and deduct legitimate business expenses, the Cohan Rule can substantially decrease your tax liability. This is crucial if you’re piecing together back tax returns and find yourself short on documentation.
  3. Empowering Negotiations: Knowing about the Cohan Rule arms you with valuable information that can be leveraged in discussions with the IRS. It shows that you’re informed and proactive, qualities that can influence the outcome of tax disputes.

How to Use the Cohan Rule Wisely

While the Cohan Rule is a powerful tool, it’s not a free-for-all. Here’s how to use it effectively:

  • Be Reasonable: Your estimates must be plausible. Wild guesses won’t fly with the IRS.
  • Show Evidence of Effort: Demonstrate that you’ve made a genuine attempt to track and document expenses, even if the records are incomplete.
  • Consult a Professional: Navigating the complexities of IRS rules can be daunting. A tax professional can help you make the most of the Cohan Rule and ensure your estimates are defensible.

Conclusion

Just like how I’d rather run laps than do bookkeeping, sometimes we must tackle the less pleasant aspects of life head-on. If you’re dealing with back taxes and missing records, remember the Cohan Rule. It might just be the lifeline you need to turn a potential financial disaster into a manageable situation.

Need more insights or help applying the Cohan Rule to your tax situation? Dive deeper into tax strategies and solutions on my blog or reach out for personalized advice. Don’t let the fear of imperfect records keep you from taking control of your tax destiny.

Andrew Samaniego, EA, CTRC, MSCTA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com