Net Operating Loss Deduction in the News

Posted on October 10, 2016 by Kursti Nakagawa

Net Operating Loss in the News

A net operating loss occurs when the allowable business tax deductions for any given tax year exceeds gross income for that year, thus generating a negative taxable income. Beginning with the Revenue Act of 1918, tax law has allowed for the carryover of such losses, making them a valuable tax planning tool for reducing taxable income in any year where a profit is generated. The federal carryback and carryforward periods, which have fluctuated over the years, are currently set at two and 20 years, respectively. Many states also permit the carryover of a net operating loss although the allowable the time periods and rules governing the deduction vary considerably from state to state. At the present time, the majority of states allow the corporate net operating loss deduction to be carried forward for some period of time while a much smaller number allow it to be carried back.

Although the net operating loss deduction is most commonly used on corporate tax returns, losses from various pass-through entities such a partnerships, limited liability companies and s-corporations can be used to cancel out income on personal returns. Such was apparently the case with the personal tax returns of Donald Trump which is why the carryover of a net operating loss has made the news headlines in recent weeks. Although Trump’s tax returns have not officially been released, the portions of his 1995 state income tax returns for New York, New Jersey and Connecticut that were recently uncovered by the New York Times showed him claiming a negative income of over $916,000 million for that year. Although it has not been confirmed, speculation is that this negative income represented a net operating loss from businesses that were set up as pass though entities. If this is the case, those losses have been available to cancel out income from these various businesses and thus reduce the taxes owed by Mr. Trump over much of the time that has transpired between 1995 and the present.

Regardless of the specifics of Donald Trump’s tax returns, it is certain that the carryover of a net operating loss can be a valuable tax saving tool for businesses of any size, maturity level or business structure. Using this deduction, companies with fluctuating income can take full advantage of deductions that would be otherwise be lost in years where expenses exceed income. In fact, the carryover of a net operating loss is one of the only means by which the taxes owed by a business in any given tax year can be reduced by anything other than tax credits or tax deductions earned in that specific year. Although certain items such as personal exemptions and non-business deductions including contributions to charities, deductible IRA contributions and medical deductions cannot be used to calculate a net operating loss, it is nevertheless a valuable tax saving and tax settlement tool available to businesses across the board.

If you have tax questions or a tax debt you are unable to pay, our experienced tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. Our CPAs, Enrolled Agents and other skilled accountants have a thorough understanding of tax law together with the experience necessary to know which tax settlement option will be the best fit for your specific set of circumstances.

What Happens If You Can’t Pay Your Taxes?

Posted on April 26, 2016 by Kursti Nakagawa

What Happens If You Can’t Pay Your Taxes?

What Happens if You Can’t Pay Your Taxes?

What happens if you owe tax money to the IRS and you cannot afford to pay it? Most importantly, do not ignore the IRS. They have a lot of information on you and are not going to forget about the money that is owed. To prevent the IRS from initiating aggressive collection techniques such as freezing your bank accounts and garnishing your wages, it best to contact them promptly. A tax problem will not go away. On the contrary, it will only compound and increase over time until it is resolved. There are several options available for resolving a tax debt. Some of these options can be initiated directly with the IRS. However, if your tax problem is complicated, it may be in your best interest to hire a qualified tax resolution specialist to assist you. Here are some steps to take if you owe back taxes and do not have the necessary funds to pay the balance in full:

File Your Taxes on Time (even if you don’t have the funds to pay the balance due): No matter what your financial situation, stick with the same process each tax year and submit your tax return by the filing deadline. Whether you decide to use the services of a CPA/accounting firm or a seasonal tax company or file on-line yourself via tax prep software, always send in your return on time or file for a tax extension. If you fail to do this, you will be assessed a failure to file penalty which will begin to accrue the day after tax day. This penalty will be levied in addition to interest and possible failure to pay penalties on any taxes you may owe. These penalties and interest charges will add up very quickly over time so it is always advisable to avoid the late filing penalty even if your do not have sufficient funds to pay the tax balances owed. Okay, this is good information, but what if you already owe the IRS money?

Set up a Payment Plan: If you owe back taxes, it is best contact the IRS immediately.The IRS would rather work with people who acknowledge owing back taxes rather than chasing around after them around to collect the outstanding tax liabilities. There are several types of installment plans that can be set up to pay off a tax bill over time. To review theses plans as well as other options available for settling a back tax balance, see the following IRS link: https://www.irs.gov/Businesses/Small-Businesses- &-Self-Employed/Filing-Past- Due-Tax- Returns . If this is your first time failing to pay your taxes on time, the IRS may be lenient and waive the penalty. See the following IRS link for information on penalty abatements: https://www.irs.gov/Businesses/Small-Businesses-&-Self- Employed/Penalty-Relief- Due-to- First-Time- Penalty-Abatement- or-Other-Administrative-Waiver.

Seek a qualified CPA or a Tax Resolution Specialist: If your tax problem is too big or too complex for you to solve on your own, a CPA or a qualified tax resolution specialist will be able help you explore your tax settlement options. Such an individual should be able to look at your situation to see which settlement options will work best for your specific set of circumstances. In addition, CPAs and Enrolled Agents have the power to negotiate directly with the IRS on your behalf in order to reach the best settlement agreement possible. Once a tax settlement plan has been set up, it is important that the payments are made according to the payment schedule and that taxes are filed on time each year. Late payments or failing to file tax returns by the filing deadlines will normally negate a previously negotiated tax settlement agreement. Simply make it a habit!

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which settlement option will be the best fit for your specific set of circumstances.

Tax Debt May Result in Loss of Passport

Posted on February 29, 2016 by Kursti Nakagawa

Tax Debt May Result in Loss of Passport

One of the numerous bills passed by Congress toward the end of last year was the Fast Act (Fixing America’s Surface Transportation Act). Executed on December 5, 2015, the main focal points of the bill are improving the county’s transportation infrastructure, strengthening public transportation and improving highway safety. However, in addition to the Fast Act’s focus on these transportation related issues, it contains an important line item which allows the State Department to go after United States citizens who owe back taxes by interrupting their use of a passport. The bill allows the government to refuse to issue a passport, fail to renew a passport or revoke a current passport if a taxpayer owes back taxes in excess of a certain threshold amount. This provision is particularly significant because, for the first time, it allows the IRS to share information with the State Department.

The IRS has been aggressively trying to collect back taxes for the past several years. However, they have recently had to scale back on the number of employees devoted to tax collection in order to deal with such pressing issues such as tax fraud, identity theft and tax scams. In light of this employee shortage, the Fast Act takes a step in the direction of collecting back taxes by interfacing with the State Department. It declares that any United States taxpayer who owes $50,000 or more in taxes, interest and penalties is considered to be in “seriously delinquent debt.” Once this designation has been established, the bill allows the IRS to turn to the Secretary of State to deny a passport when one is about to be issued or renewed by such an individual. Because a passport is a strong representation of freedom for any U.S. citizen, the new bill makes a powerful statement about the government’s focus on collecting delinquent tax payments.

If you are a taxpayer who falls into delinquent taxpayer category described above, it may well be advisable for you to contact a competent tax settlement professional to investigate your tax settlement options. Among other alternatives, these options include an IRS Offer in Compromise or IRS Installment Agreement. While a traditional Installment Agreement simply makes payment of a tax debt more manageable by setting up a payment plan, both the Offer and Compromise and the Partial Payment Installment Agreement settle the debt for less than the full amount owed. An additional option is to request a Collection Due Process Hearing. Once a taxpayer and the IRS have agreed upon a method for paying the back tax balance, the Secretary of State will go through the motions of removing the hold on the taxpayer’s passport. Similar to the IRS revoking a lien or a levy, the Secretary of State will deem the taxpayer’s current passport valid or issue a release allowing a passport to be renewed or a new one to be issued.

Where is My Tax Refund?

Posted on February 2, 2016 by Kursti Nakagawa

Where Is My Tax Refund?

Where is My Refund?

The IRS has announced that the recently opened 2016 tax season started off on a good note. In fact, they reported the receipt of thousands of tax returns on opening day with no major filing issues. It has also been reported that the average wait time for a tax professional to speak to an IRS representative is ten minutes in comparison to wait times of over an hour last year. Although it is still very early in the game, expectations are high for a smooth and easy tax season. This includes the issuing of tax refunds which is the aspect of tax filing that is usually of highest interest to taxpayers.

If you have filed your tax return and are anxiously awaiting your refund, you are well ahead of the game. This year, taxpayers actually have a few extra days to file their 2015 tax returns. The filing deadline has been moved ahead to Monday, April 18, 2016 (April 19, 2016 for taxpayers in in Maine and Massachusetts) due to the observation of the Washington D.C. Emancipation Day holiday on April 15th. That being said, once you or your tax preparer have filed your return, you can go to the IRS Refund app/tool on the IRS website https://www.irs.gov/Refunds to check the status of your refund. The IRS updates this site once per day, so there is no advantage to checking it constantly.

The “Where’s My Refund?” app/tool will guide you through the refund process in three easy steps:

1) Return Received – The site will let you know when your return has been officially been received by the IRS.

2) Return Approved – Most refunds are approved and sent via direct deposit unless you have requested a paper check. Once your return has been approved, the site will let you know when your refund is scheduled to arrive.

3) Refund Sent – Your refund is on its way. It usually takes about five days for direct deposits to arrive, whereas mailed refund checks can take weeks

The IRS predicts that most refunds will be issued in less than 21 days from the time the return is received. However, the process will take longer if there is a mistake, an inaccuracy, an omission of required information or the return is selected for further review. To avoid a delay in receiving your refund or even an audit, it is often best to use a professional tax preparer, especially if your return is complicated. If you have not received your refund within 21 days of e-filing (or six weeks of mailing your paper return), the “Where’s My Refund?” app/tool that will route you to direct contact with an IRS agent to get further information and assistance. Based on 2015 data which showed that the IRS processed over 109 million refunds, this streamlined refund process represents quite an accomplishment!

Trust Fund Recovery Penalty Averted!

Posted on January 25, 2016 by Kursti Nakagawa

Trust Fund Recovery Penalty Averted!

Professional Tax Resolution latest Success Story: Trust Fund Recovery and Penalty Averted. The owner of BM Corporation contacted our office shortly after receiving a subpoena from the IRS requesting all of their banking records. Unsure of how to respond to the notice and fearful of the potential consequences it might hold, they contacted Professional Tax Resolution for help. Our staff responded immediately by filing a Power of Attorney and contacting the IRS Revenue Officer. Within a matter of three weeks, we had submitted all of the company’s back payroll tax returns and completed the necessary business financial statements. In addition, our tax resolution specialists had negotiated a tax settlement agreement for payoff of Trust Fund monies which included an initial payment together with a payment plan for the remainder the back tax balance owed. All of this work was done prior to the IRS reviewing the client’s bank statements!

As frequently happens, BM Corporation had responded to a cash flow shortage by using payroll tax funds to cover the operating expenses of the business. It was this situation that resulted in them falling behind on their payroll tax obligations. Although they had planned to catch up when their financial situation improved, this had not yet happened at the time they received the IRS subpoena requesting their banking records. Because payroll taxes include amounts that have been withheld from an employee’s paycheck and are being held in trust by the employer until payroll tax payments are due, the IRS purses collection of these taxes very aggressively. Had Professional Tax Resolution not intervened in the case of BM Corporation, the company would likely have been assessed very quickly and heavily.

The tax settlement situation described above illustrates how experienced tax professionals offer a distinct advantage in dealing with the IRS. They not only know the consequences of unpaid tax balances, but they know to resolve them in the quickest and most effective way possible. In the case of BM Corporation, speedy intervention on the part of the tax specialists at Professional Tax Resolution almost certainly avoided an assessment of the Trust Fund Recovery Penalty which is equal to 100% of the back payroll tax balance owed. Not only was the penalty averted and a payment plan put in place, but it was all accomplished prior the IRS even reviewing company bank statements!