Andrew Samaniego | Tax Resolution Blog | CA

Tax Tips

The True Cost of DIY Taxes: A Story of Two Rental Property Owners

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I had two interesting conversations that perfectly illustrate why “saving money” on tax preparation often costs more in the long run.

Meet Tom and Sarah (names changed for privacy). 

Both own rental properties, both are successful professionals, and both were convinced they could handle their own taxes.

Tom’s Story: The DIY Approach

Tom came to me after doing his own taxes for three years. 

“My return isn’t that complicated,” he had always thought. 

He’d spend a weekend each February gathering receipts, logging into TurboTax, and plugging in numbers. 

He felt good about saving on tax preparation fees.

That is, until he received an IRS notice.

During our review, we discovered he had been depreciating his rental property incorrectly and missing several key deductions. 

Those “simple” returns had cost him over $15,000 in overpaid taxes over three years. 

The worst part? 

He had to file amended returns and deal with IRS correspondence on his own since no professional had prepared the original returns.

Sarah’s Story: The Professional Advantage

Sarah, on the other hand, came to me before she purchased her first rental property. 

Initially, she too wondered why she needed professional help. 

“I’ll have to pay so much in taxes anyway,” she said during our first meeting.

But here’s where her story takes a different turn.

Through our tax planning sessions, we structured her rental property ownership optimally from the start. 
We discussed timing for improvements, set up proper recordkeeping, and implemented a tax strategy that worked for her entire financial picture.

The result? 

In her first year as a landlord, Sarah paid $8,000 less in taxes than she expected. 

Not because of any magic, but because we planned ahead and used every legal deduction available.

The Real Difference

The difference between Tom and Sarah isn’t intelligence or business acumen — they’re both smart, successful people. 

The difference is that Sarah had a professional in her corner who lives and breathes tax code all year long.

You see, tax preparation isn’t just about entering numbers into software. It’s about understanding the story those numbers tell and knowing how to make that story work in your favor.

When you work with a tax professional, you’re not just getting someone to fill out forms. You’re getting a partner who:

  • Thinks about your taxes when you’re busy running your business
  • Researches strategies months before tax season
  • Creates a barrier between you and the IRS
  • Helps you make financial decisions that impact your tax future

A Conversation Worth Having

Remember that IRS notice that brought Tom to my office? He told me something that stuck with me: “I thought I was saving money, but I was actually paying thousands extra in taxes every year without knowing it.”

This isn’t about whether you’re capable of doing your own taxes. It’s about understanding that tax professionals don’t just prepare returns — we build strategies that save you money year after year.

The Question That Matters

So instead of asking “Why should I pay someone to do my taxes?” try asking “How much am I losing by not working with a tax professional?”

If Tom and Sarah’s stories resonate with you, let’s talk. Whether you’re a current rental property owner, thinking about buying your first investment property, or running a small business, I’d love to help you write your own success story.

Ready to Stop Leaving Money on the Table?

Visit AndrewSamaniego.com to learn more about how we can work together, or schedule a consultation. Let’s make sure your tax story has a happy ending.

Until Next time,

Andrew “Your new Tax Pro” Samaniego, EA

Andrew Samaniego Tax Planning & Resolution

(619) 268–1084 | AndrewSamaniego.com

P.S. The cost of professional tax preparation is an investment in your financial future. And like Tom learned, doing it yourself can be the most expensive option of all.

IRS Collection Notices Decoded: What They Really Mean

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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

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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

Turn Chores into Checks: How Paying Your Kids Can Cut Your Tax Bill

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Entrepreneurs and savvy parents! Today, we’re diving into a topic that’s both practical and potentially lucrative for your family business. It’s about turning those everyday chores into a strategic financial advantage.

Growing up, like many of you, I never really had a formal allowance. My “payments” were more about food and shelter, and occasionally, a sneaky promise of “all the money in my wallet” from my dad, which, humorously, was often empty.

Fast forward to today, and it’s clear that if my dad had known the potential tax savings involved in actually paying me for chores, we could have optimized our finances significantly during tough times, like during the 2008 real estate dip that hit our family hard. But here’s where you can learn from the past and leverage your situation today.

My son who will be receiving a 1099 for Christmas 😉

Why Pay Your Kids?

1. Significant Tax Deductions: For 2024, you can pay each child up to the federal standard deduction amount of $14,600 and the California standard of $5,363 without them needing to file a tax return. Imagine reducing your taxable income by these amounts per child!

2. Financial Education for Your Kids: Paying your kids for work done not only teaches them the value of money and hard work but also introduces them to the basics of financial management—an invaluable life skill.

3. Empower Their Independence: Use the money they earn to fund their extracurricular activities, from sports to school events, or even save for significant future expenses like college tuition or even a ROTH IRA!

4. Transform Business into a Family Affair: Integrating your children into your business operations can enhance family bonding and give them a taste of entrepreneurship early in life.

How to Do It Right

As a Sole Proprietor: The process is straightforward. You simply record the payments on your Schedule C as a management fee to your new family management company. It’s crucial, however, to ensure these are for legitimate business-related tasks and properly documented.

If You Incorporate or Form a Partnership: This is where things can get a bit complex. The rules differ, and you might need to implement different strategies based on your business structure. Consulting with a knowledgeable accountant who understands family business tax strategies becomes essential.

Making It Official

  1. Define the Work: List the tasks your kids are doing for your business. Whether it’s managing your social media accounts, filing paperwork, or assisting with inventory, keep it official.
  2. Set Reasonable Pay Rates: The pay must match the work in terms of industry standards. No paying $100 for taking out the trash!
  3. Keep Good Records: Document everything—from hours worked to payments made. This documentation will be crucial for tax purposes and in case of any queries from the IRS.
  4. Consult with Professionals: Before implementing this strategy, talk to a tax professional to ensure compliance and optimization based on your specific business and personal tax situation.

Ready to Learn More?

If this peek into tax-saving tips sparked your interest, I’ve got more good news! Visit my website to download your free e-book on more tax tips and strategies to enhance your financial well-being. Whether you’re trying to navigate complex tax laws or looking for ways to educate your children about money, this e-book is a treasure trove of information.

Don’t let another tax year pass by without harnessing the potential within your own family. Head over to CrushIRSAnxiety.com today and start transforming your financial strategies and family’s future. Here’s to smarter financial management and making family a part of your business success story!

Andrew Samaniego EA

Andrew Samaniego Tax Planning & Resolution

(619) 268-1084  |  AndrewSamaniego.com

Unlock the Secret: How Your Tech Gadgets Can Actually Lower Your Tax Bill in 2024!

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Are you itching to ramp up your business and shave down your tax bill? Well, strap in because I’m about give you the secrets on how to morph your tech gadgets into big, fat tax deductions!

In the high-speed world of today, tech isn’t just vital—it’s the very pulse of our business operations. We’re talking laptops, smartphones, and all the tech in between. These gadgets aren’t just shiny toys; they’re serious business investments. And the cherry on top? A hefty chunk of these expenses can vanish from your tax bill if they’re used for business purposes.

Tech Toys as Tax-Saving Titans

The tech that keeps your business engine roaring:

  • Computing Muscle: Laptops, desktops, printers. Check.
  • Mobile Must-Haves: iPads, tablets, e-readers. Got ’em.
  • Image Makers: Cameras, lights, studio gear. Essential.
  • Sound Squad: Microphones, speakers, mixing tech. Loud and clear.
  • Visual Vanguards: TVs, monitors, projectors. All eyes on these.
  • Tech Accessories: Bluetooth devices, smartwatches—yeah, even your fancy wrist tech.

Keep ironclad records of every purchase. Stash those receipts like a squirrel with nuts, and when the tax man comes, you’ll be ready.

The Cell Phone Hack: Deduct Like a Boss

Your cell phone—glued to your hand and a cornerstone of your business communication. Thanks to the Small Business Jobs Act of 2011, deducting your cell phone is simpler than snatching a lollipop from a baby—no need to untangle business from personal use anymore. If your phone is essential for your operations (and let’s be real, it is), then those costs are ripe for the picking. What’s more, if your crew, or the fam is involved in the business and they use their phones for work, *ding* *ding* *ding*—deduct those too!

Smart Watches: Your High-Tech Tax Loophole

Now, let’s talk about that stylish little number ticking away on your wrist. Smartwatches are more than just bling; they’re command centers on the go, keeping you dialed into your business needs from anywhere. The IRS might not have laid down the law specifically for smartwatches yet, but if an expense is crucial and customary for running your business, you can bet your bottom dollar it’s deductible.

Wrap-Up: Tech Your Way to Tax Savings

And there it is, your no-nonsense guide to turning tech expenses into tax deductions. Harness these tools, boost your operational efficiency, and bask in the glow as your tax liabilities dwindle. But remember, double-tap with your tax advisor to make sure you’re squeezing every last benefit out of your deductions while keeping the IRS happy.

Charge forth, conquer the business terrain, and don’t forget: that next tech upgrade isn’t just an expense—it’s a strategic move to fortify your bottom line. Your accountant might just want to hug you.

Are you ready for a tax advisor for your small business? Contact us below!

Andrew Samaniego EA
Andrew Samaniego Tax Planning & Resolution
(619) 268-1084  |  AndrewSamaniego.com/tax-planning-services