Tips and Tricks for Filing Your Taxes Don’t Let the IRS Get the Better of You FirthLaw.com 760-770-4066 APRIL 2020
April 15 will be soon upon us, which means it’s time for our annual reckoning with the taxman. This time of year can be stressful for anyone, and even the slightest hiccup in your taxes can cause your anxiety to go through the roof. To prevent your heart rate from spiking, here are some pointers to keep in mind as the day approaches. 1. You are responsible for the contents of your tax return. I once had a bankruptcy client give me a copy of their joint tax returns per the rules of the bankruptcy code so I could pass them along to the trustee. As I reviewed the document, I asked the couple about the person who prepared the tax return, and they informed me that it was the first time they used this particular preparer. During their first meeting, the preparer asked the couple if it would be okay to be very aggressive with their tax return. Hoping to save money they said yes. I then asked them whether they realized they sold a business that gave them a $150,000 loss. This came as a surprise to the couple because they never owned a business — it was fictional and created by the tax preparer to reduce their taxes. If the IRS had caught the mistake, they would no doubt have been prosecuted for tax fraud, which would’ve entitled them to an all-expense-paid vacation to “Club Fed” for five years. I told them to find a legitimate tax preparer to file an amended return to remove that bogus tax loss and hope the IRS doesn’t come knocking on the door. Fortunately, it didn’t. The moral of the story is that you are the person responsible for the contents of your tax return. When you sign the tax return, the IRS holds you solely responsible for what’s in it and you’re subject to the laws of tax fraud. It’s not considered an adequate defense to say, “A tax preparer did it, and I just signed the return.” It’s your duty to review the returns and question the tax preparer on anything that doesn’t seem right to you. 2. File your return and send a check. I never file my returns electronically because I’ve heard too many stories of them getting lost. My preferred method is to mail the return, along with a check for what I owe. But as a self-employed lawyer, I always owe something. If you don’t have the money to pay the taxes owed on your return, my advice is twofold. First, mail the return anyway because the penalties for failing to file on time can be Draconian. It’s better to file the return with no payment and be subject to the interest on the amount you owe rather than the penalties you could incur by not filing. Second, give the IRS a check for something, even if it’s $10. When the IRS cashes the check, you will have proof they have received your return. Once again, I have had
clients tell me the IRS denied receiving the return even though the client is sure it was mailed. The canceled check is your proof the IRS got the return, and it works better than sending it with a postcard return receipt requested. The IRS can, and has, taken the position that these envelopes were empty. Maybe they were, or maybe they weren’t. So, it’s best to have proof in the form of your canceled check. 3. The IRS can be very accommodating when working out payment plans. When you file, you can include a request for a payment plan, which will set you ahead of the curve. This way, you will limit any additional penalties, and you’ll be able to set up a reasonable plan to pay your taxes. 4. If you have to decide whether to pay the IRS or the Franchise Tax Board, I recommend the FTB. The IRS will work with you to get your taxes paid, but the Franchise Tax Board tends to levy first and ask questions later. There is nothing worse than getting that call from the bank to discover that the Franchise Tax Board has taken all the money out of your bank accounts due to alleged unpaid taxes. In closing, have a happy April 15, and if you can’t get your return done on time, at least file the extension! -Robert L. Firth Helping clients with bankruptcy, estate planning, and tax resolution.
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