Andrew Samaniego | Tax Resolution Blog | CA

Tax Debt

Which IRS Installment Agreement Fits You Best?

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Hello, tax warriors! Guess what’s back in San Diego, and it’s not something we’ve missed—yup, the flu. My household’s been in the trenches with it; my wife’s down for the count, and I’ve been juggling dad duties with our little trooper, Kainalu, while keeping our home fortress secure.

Amidst all this chaos, I haven’t let up on battling another formidable beast—the IRS (and let’s not forget the FTB) on behalf of folks like you who haven’t filed taxes in over three years.

Speaking of battles, let’s talk strategy, specifically about navigating the murky waters of IRS installment agreements. Finding the right plan can feel like choosing the right weapon for battle—each has its advantages depending on the fight (or debt) you’re facing.

Understanding IRS Installment Agreements

First off, what exactly is an IRS installment agreement?

Think of it as a peace treaty with the IRS. It allows you to pay your tax debt over time instead of all at once. This can be a lifesaver if you’re drowning in back taxes and can’t cough up the full amount immediately. But not all installment agreements are created equal. There are several types, each with its own set of rules and qualifications.

1. Guaranteed Installment Agreement

This is the lightweight fighter of the bunch—quick, nimble, and easy to handle if you owe $10,000 or less. You can typically set this up without much fuss as long as you agree to pay off your debt within three years. No detailed financial statements required, no disclosures of your spending habits, just a straightforward monthly payment plan.

Best for: Those with relatively low tax debts looking for a quick and easy resolution.

2. Streamlined Installment Agreement

Stepping up in weight class, we have the streamlined installment agreement. This one’s for debts up to $50,000, and you get up to 72 months to pay. You’ll need to have all your tax returns filed, and you must commit to monthly payments, but the IRS won’t poke around in your financial life too much.

Best for: Individuals with moderate tax debts who can handle a steady payment plan over a few years.

3. Non-Streamlined Installment Agreement

Now we’re in heavyweight territory. If you owe more than $50,000, things get a bit more complex with the non-streamlined installment agreement.

Here, you’ll need to provide the IRS with a Collection Information Statement. This document lays bare your financial soul—your income, expenses, assets, debts, the works.

Negotiations might be tougher, and you’ll want to strap on your best armor (aka, possibly get professional help).

Best for: Those with substantial tax debts who need a tailored payment plan and are prepared for some financial disclosure.

4. Partial Payment Installment Agreement

Finally, for the battle-worn, there’s the partial payment installment agreement. This plan acknowledges that you might never pay off the full amount based on your financial situation. You make smaller monthly payments over time, and the IRS might forgive some of your debt at the end of the agreement period.

Best for: Taxpayers who cannot realistically pay off their entire tax debt given their current and projected financial situations.

Choosing Your Battle Plan

Deciding which installment agreement fits best isn’t just about how much you owe; it’s about understanding your financial capacity, your future income prospects, and how much you can handle monthly without capsizing your financial ship.

While I’m over here being super dad and nursing my better half back to health, don’t hesitate to reach out if you need some backup with your IRS issues. Whether it’s setting up the right payment plan or negotiating tougher IRS seas, I’ve got your six.

Stay strong, stay healthy, and let’s keep those tax battles as painless as possible!

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

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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

How to Use State Tax Debt as a Bargaining Chip with the IRS

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What a whirlwind of events this weekend! From the highs of launching my YouTube channel and visiting the Temecula vineyards, to the unsettling news of an attempt on Former President Trump’s life—a figure whose speeches I admired during my time at the US Naval Academy. It’s times like these that remind us to stay resilient and focused, no matter the chaos.

Amidst all, let’s shift gears back to something we can control: navigating the treacherous waters of tax negotiation. Particularly, how you can use your state tax debt as a cunning leverage point in negotiations with the IRS.

The Art of Leverage

In the world of taxes, knowing how to maneuver can make or break your financial health. One less known but effective strategy is using your state tax liabilities as a bargaining chip with the IRS. Here’s why this works and how you can apply it:

Understanding the IRS vs. State Tax Boards

The IRS and state tax authorities, like the California Franchise Tax Board, often seem like they’re cut from the same cloth. However, they operate under different rules and have different levels of flexibility when it comes to debt settlement. States, especially California, are notoriously rigid in their negotiations. They often do not budge much on the amount owed.

Step 1: Assess Your Total Tax Liability

Firstly, get a clear picture of what you owe both to the IRS and your state tax board. This will be your starting point in understanding the scope of your negotiations. Remember, knowledge is power—particularly when it involves figures the IRS might be interested in.

Step 2: Approach the IRS

When you negotiate with the IRS, point out your significant state tax liabilities. Here’s the kicker: since the state is less likely to negotiate down the debt, you can argue that a significant portion of any resources or payments you can muster will need to go towards settling your state tax debts.

Why This Appeals to the IRS

The IRS is keen on collecting as much as possible but understands they are in line with other creditors, including state tax authorities. If they see that the state will take a substantial part of your payment capacity, they might be more willing to negotiate favorable terms on the federal tax debt to ensure they receive something rather than nothing.

Step 3: Propose a Payment Plan

Armed with the knowledge that you have substantial state debts, propose a payment plan to the IRS that considers your total debt load. This plan should aim to balance payments realistically between state and federal liabilities. Demonstrate good faith by proposing a structured payment schedule that prioritizes both debts.

Step 4: Documentation and Professional Help

Back up your negotiation with thorough documentation. Show clear calculations of your income, existing debt obligations, and potential payments. In such complex negotiations, it is prudent to seek the guidance of a tax professional who can strategically present your case to the IRS.

Wrapping Up

While the realm of taxes often feels daunting, strategic approaches like using your state tax liabilities as leverage in IRS negotiations can provide surprising relief. Just as we keep our spirits up and resilience ready in the face of national events, so too should we tackle our financial obligations with strategic foresight.

Remember, navigating these tricky waters doesn’t mean you’re alone. Consult a tax professional who can provide you with the arsenal you need to make the most of every negotiation with the IRS.

Andrew Samaniego, EA, CTRC, MSCTA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com

Substitute Returns: Why They Can’t Be Discharged and What It Means for You

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Happy Monday, folks! As we gear up for a new week full of potential and growth (both personally and professionally), I’m excited to share a bit of my own news—I’m starting a YouTube channel! That’s right, I’ll be diving into the world of video to bring tax solutions right to your screen, helping turn those tax problems into tax triumphs.

Now, onto a less thrilling but critically important topic: Substitute for Returns (SFRs) by the IRS. Understanding this could save you a lot of headaches down the road.

What is a Substitute for Return (SFR)?

Let’s set the scene: you’ve missed filing your taxes for one reason or another. Instead of letting it slide, the IRS steps in and files a Substitute for Return. This might sound like a helpful service, but don’t be fooled—this is the IRS’s way of ensuring they get what they believe you owe, and it often doesn’t work out in your favor.

An SFR typically only includes the basic information the IRS has about your income from sources like your W-2s and 1099s. What does it miss? Pretty much everything that could benefit you. Deductions, credits, exemptions—you name it, it’s likely not included. The result? A higher tax bill than you might actually owe.

Why Can’t SFRs Be Discharged?

Here’s where it gets even stickier. A tax debt from an SFR is particularly tough because, under the law, these cannot be discharged in bankruptcy under most circumstances. Why? Because the tax return was not filed by you, the taxpayer, and bankruptcy law requires that you file a tax return for the debt to be dischargeable.

This means if the IRS has filed an SFR on your behalf, you’re stuck with this debt unless you take action. It’s a ball and chain on your financial freedom, potentially preventing you from clearing your slate even in dire circumstances.

What Can You Do About It?

  1. File Your Actual Return: If you’ve had an SFR filed, it’s not the end of the world, but you need to act quickly. You can still file your actual tax return to replace the SFR. This is crucial because your own return will likely include all the deductions and credits you’re entitled to, potentially reducing your tax liability significantly.
  2. Consult a Tax Professional: Navigating SFRs and their implications can be complex. Professionals like myself, Enrolled Agents who specialize in tax resolution, can help you understand your options, file your overdue returns, and even negotiate with the IRS to get penalties reduced.
  3. Stay Compliant Going Forward: Once you’ve addressed the SFR, ensure you stay on top of your tax filings in the future. Keeping current with your tax obligations prevents the IRS from stepping in and taking matters into their own hands again.

Wrapping Up

As we launch into new endeavors, like my upcoming YouTube channel, it’s important to remember that dealing with something like an SFR head-on is always better than letting it fester. The IRS doesn’t create these substitute returns for your benefit—they do it for theirs. By taking control of your tax situation, you ensure that you’re not paying more than you need to and protect your financial future.

Stay tuned for more insights on my new YouTube channel, and remember: every tax problem has a solution. You just need the right tools and knowledge to find it. Cheers to a productive week ahead, and let’s tackle those tax issues together!

Andrew Samaniego, EA, CTRC, MSCTA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com

Love the Government’s Numbers? Here’s Why You Might Want to Reconsider

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Hello, everyone! Last night, we rediscovered one of California’s iconic experiences—the drive-in theater in San Diego.

With the beautiful night sky above us and nestled in the comfort of our car, it was the perfect way to enjoy a movie with our little one, Kainalu, without the fuss of a traditional cinema.

Speaking of doing things differently, it got me thinking about a less enjoyable aspect of life where going with the ‘default’ might not be in your best interest—dealing with the IRS, especially when it comes to their version of your tax returns.

When the IRS Does Your Homework

Imagine this: You’ve skipped filing your taxes for a few years. Maybe life got busy, or perhaps the paperwork seemed overwhelming. Whatever the reason, if you don’t file, the IRS can file a tax return on your behalf.

This is known as a Substitute for Return (SFR). Sounds helpful, right? Well, not so fast. Let’s dive into why accepting the IRS’s numbers might not be the best move.

**1. One-Size-Fits-All Approach: Just like a drive-in movie isn’t the perfect fit for every moviegoer, an SFR isn’t tailored to your unique financial situation. The IRS fills out these returns based only on the information it has, which usually means without any deductions, credits, or exemptions you might be entitled to. This can lead to a significantly higher tax bill.

**2. Missing Out on Deductions and Credits: When the IRS creates an SFR, they don’t know about your charitable donations, your deductible mortgage interest, or that you have three kids who could qualify you for substantial tax credits. Every detail omitted can mean more dollars out of your pocket.

**3. Tax Liabilities and Penalties: Not only does an SFR often result in higher tax due, but it also starts the clock on penalties and interest. These can accrue at an alarming rate, turning what might have been a manageable bill into a financial nightmare.

**4. Less Control Over Your Financial Life: Relying on the government to report your earnings and calculate your taxes means giving up control of your financial narrative. It’s like letting someone else pick the movie you’re going to watch at the drive-in—you might end up watching a horror flick when you really wanted a comedy.

Taking Back the Reins

So, what can you do if you find yourself facing an SFR? First, don’t panic. Second, it’s time to take action:

  • File Your Past Returns: Even if the IRS has already filed an SFR, you can still file your own return to replace it, and this is almost always in your best interest.
  • Claim What’s Yours: Make sure to include all your deductions and credits. It might not just reduce your tax liability; it could lead to a refund.
  • Seek Professional Help: Navigating back taxes and replacing an SFR can be complex. Working with a tax professional like an Enrolled Agent can help ensure you’re making the right moves.

Conclusion

Just like choosing a drive-in over a traditional movie theater gave us control over our family movie night, taking charge of your tax situation gives you control over your financial future. Remember, when it comes to the IRS, the default option is rarely the best choice. If you haven’t filed your taxes in a while, it’s time to switch from the backseat to the driver’s seat.

If you need help or guidance with filing past returns or dealing with an SFR, visit my website for more information or to contact me directly. Let’s get your tax situation back on track under the stars of clarity and confidence, not under the cloud of IRS defaults.

Andrew Samaniego, EA, CTRC, MSCTA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com

Non-Filers, Meet the IRS: How Wage & Earning Reports Can Work for You

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I hope you all had a spectacular Fourth of July, we enjoyed the fireworks over Lake Murray here in beautiful San Diego. As we settle back into the daily grind, let’s talk about a crucial issue that many overlook—what happens when you haven’t filed your taxes for several years.

Imagine this: you’ve missed filing your taxes. Not just for one year, but for several. This isn’t just a small oversight; it can feel like a massive weight hanging over you. Today, we’re going to address one of the most powerful tools at your disposal if you’re a non-filer: the IRS Wage and Earning Reports.

Why You Might Not Have a Tax Problem, But a Filing Problem

During my consultations, I often meet people who are terrified they’re in deep trouble with the IRS. But here’s a little secret: many of you might not actually have a tax problem; you might just have a filing problem. Yes, it sounds less daunting when you put it that way, doesn’t it?

The Magic of Wage and Earning Reports

For many of my clients, especially those who have worked standard W-2 jobs and have simply fallen behind on their paperwork, the solution might be simpler than you think. The IRS keeps a record of all your reported earnings through what’s called Wage and Earning Reports. These documents compile all the information from forms like W-2s, 1099s, and other tax documents that employers and clients file to report what they’ve paid you.

How These Reports Can Help You

  1. Identify What You’ve Earned: These reports provide a clear picture of your earnings over the years. This is invaluable if you’ve lost your own copies or never kept records in the first place.
  2. Facilitate Filing Back Taxes: With accurate income information, you can retroactively file your tax returns. This isn’t just about compliance; it’s about potentially unlocking refunds you didn’t know you had coming.
  3. Assess Potential Liabilities: If it turns out you do owe money, having all the correct information can help you or your tax professional create an accurate return and minimize what you owe. Sometimes, it’s much less than expected.
  4. Set the Stage for Negotiations: If you’re facing penalties and interest, being armed with correct and comprehensive data allows tax professionals like myself to negotiate effectively with the IRS. We can often reduce these penalties or set up manageable payment plans.

Taking Action

So, what’s your next step if you’re a non-filer who’s feeling overwhelmed? First, don’t panic. Second, consider retrieving your Wage and Earning Reports from the IRS. We offer this service as the first step in solving your Tax Resolution Case.

Need Help?

Navigating back taxes and dealing with the IRS can be daunting, but you don’t have to do it alone. If you’re unsure where to start or what to do next, I’m here to help.

Stay tuned for more content, possibly even some YouTube videos where I’ll dive deeper into these and other tax issues. Let’s turn that filing problem into a solution today!

Andrew Samaniego, EA, CTRC, MSCTA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com