Toph Sheldon CPA for the Self-Employed - October 2019

OCTOBER/NOVEMBER 2019 VOLUME 3, ISSUE 8

T O P H ’ S TAX RESOLUT ION T I M E S

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Escaping the ‘Hamster Wheel of Taxes’

First, there was the “cash flow roller coaster ride of being self-employed.” As the newly self-employed know, cash flow can be very inconsistent month-to- month. But the cash flow roller coaster isn’t the only ride the self-employed, or any taxpayer, may find themselves facing. There’s another ride, which we’ll call the “hamster wheel of taxes.” But unlike a real hamster wheel, getting off this ride can be a huge challenge if you don’t know what to do. But what is the hamster wheel of taxes? In short, it’s getting stuck paying back taxes while not addressing your current taxes. What I see with a lot of my clients, especially the self-employed, is that they have no tax withheld from their income. As a result, come tax time, they almost always owe state and federal taxes. In that first year or two, they are surprised by just how much they owe, and they can’t afford it. So, they wait until they can afford it. This is where the “hamster wheel” begins. By the time they can afford to pay year one’s taxes, it’s year two or three. But they want to pay year one’s taxes. So, they do. But when they do, they often realize they can’t pay year two’s taxes. They decide to wait again. By the time it’s year three or four, they finally pay off year two’s taxes, and the cycle continues. No matter what they do, they cannot get current with their taxes. At a glance, paying off back taxes seems like a good idea, but if you are neglecting your current taxes, it’s only putting you further behind. It’s actually better to let go of your back taxes — at least temporarily — to focus on the current year. I’m not suggesting you ignore the IRS, but I am suggesting you pay your current taxes before paying any prior year taxes.

current on your current taxes. Pay what you owe on the current year’s taxes. Once you are caught up with the current year, you can refocus on a plan to tackle your back taxes.

When you are caught up with the current year, the IRS is much more likely to work with you regarding your back taxes. Basically, paying off your current year’s taxes can give you leverage. The IRS sees that you have paid the current year’s taxes and that you are making a genuine effort to get your tax situation in order. If you do owe back taxes and you are working hard to take care

of the current year, this is when working with a CPA for the Self-Employed® can be beneficial. I frequently help clients take advantage of this newfound leverage with the IRS. The end result is an end to the hamster wheel — they are no longer going in circles trying to play catch-up. Instead, they can finally get on with their lives and their businesses.

–Toph Sheldon

Doing this can work to your advantage. You don’t have to steal from Peter to pay Paul. Instead, you can skip the cycle altogether. Here’s how it works: Get

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Finding Leverage

Pumpkin Screams

2 Client Success Stories

I recently helped two clients in their battles with the IRS. They both faced monumental tax bills, but we were able to negotiate with the IRS to arrive at more reasonable settlements. Here are their stories.

5 Tips for Longer-Lasting Jack-O’-Lanterns Jack-o’-lanterns are an iconic part of the Halloween aesthetic, but they can quickly backfire. If you carve your pumpkins too early, youmay end up with a moldy mess on Halloween. The first rule of jack-o’-lanterns is to wait as long as possible before you start carving. Here are some other tips to help you achieve the perfect jack-o’-lantern this year. Find the perfect pumpkin. A great jack-o’-lantern starts in the pumpkin patch—or in the grocery store if you’re short on time. Look for a fresh pumpkin with a sturdy, green stem, no bruises, and a flat bottom so it’s stable when you’re carving. Size and shape aren’t important, so long as the pumpkin sparks your creativity. Just make sure you don’t accidentally bring home a small sugar pie pumpkin, which will be harder to carve. Wash your pumpkin. Before you start carving, mix 1 tsp of chlorine bleach with 4 liters of water and wash your pumpkin to help prevent mold. Be sure to wear gloves! Cut from the back. Cutting the top of the pumpkin is traditional, but it removes the stem, which helps keep the pumpkin fresh. It also threatens the structural integrity of the pumpkin. Cutting from the bottom is not good, either, because all the liquid inside the pumpkin will ooze out. For the best results, carefully cut a hole in the back of the pumpkin. Apply petroleum jelly. After you’ve scooped out all the“pumpkin guts”and carved your masterpiece, apply a little petroleum jelly to the cuts. This will help seal inmoisture. The Farmers’Almanac also recommends spraying your pumpkin with anti-humidity hairspray to lock in freshness. Go electric. Using a real candle heats up the inside of the pumpkin, causing it to decompose faster. An LED tealight with a flickering effect will create that classic spooky jack-o’-lantern look and keep the pumpkin cool. Plus, you don’t have to worry about any trick-or- treaters getting burned if they accidentally trip over your pumpkin. These tips are to help your jack-o’-lantern last longer. When it comes to designs, feel free to let your imagination run wild! The best jack-o’- lantern is one you’re proud to show off on Halloween.

Paving theWay toTax Relief

Client 1 is a self-employed landscaper. The IRS hit him with an audit and a $201,000 tax bill. It was a tough situation to be in.

He contacted us, and we looked over his finances and taxes. We determined that his $201,000 tax bill was not fair. The IRS had severely inflated what he should have owed, and we went to the IRS with our information. Our initial offer to the IRS was $36,000, which would have net our client a savings of $165,000. However, that is not what happened. After reevaluating our client’s situation and his actual income, the IRS actually countered our offer with $18,000! Our client was able to walk away with savings of $183,000 because of our push against the IRS.

Building aTax Relief Strategy

Client 2 is a self-employed construction business owner. When we initially met with Client 2, he had not paid taxes for the past five years.

While he avoided an audit, he still owed $83,000. He had simply made the mistake of not filing, and he recognized he was at fault for his tax situation and realized he needed to get his situation fixed. We went to work to help him avoid the hamster wheel of taxes.

Thankfully, we did have some leverage in our negotiations with the IRS. We looked at his income and the fact that he had five kids. The circumstances suggested that his $83,000 tax bill was unfair. Ultimately, we settled with the IRS for $6,000, a $77,000 savings. However, the IRS had a condition — our client had to stay current on his taxes for the next five years.

–Toph Sheldon * All amounts listed are rounded to the nearest thousand

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Announcing a New Addition to the Sheldon Family!

Toph and I are excited to announce that baby No. 4 is on the way!

going into March and April. By the time April arrives, everyone who waited until the last minute rushes to get their taxes done — or rushes to file an extension. It may be long days for Toph, but that’s the nature of what he does. Right now, Toph’s getting his new office ready. We mentioned in the August edition of the newsletter that Toph has a new office space. Everything will be ready to go well before tax season starts. And hopefully, with the bigger space, Toph will be able to get a few more hands on deck (specifics on that coming soon)! As my due date gets closer, I’m nervously excited. But even with Toph busy during March and tax season, I’ll have plenty of help. I’m thankful my in-laws live about 15 minutes away and they’re always helpful. Plus, my mom is more than happy to make a trip from New York to spend time with our family as our new baby gets settled in.

Our newest addition is due in March, which, I will admit, isn’t the best time. I say that because March is a super busy time for Toph. It’s the middle of tax season, which means it can get crazy and hectic. Of course, that doesn’t put a damper on our excitement. Baby No. 4 joins our other three kiddos: 4-year-old Mac, 3-year-old Rex, and 18-month-old Roz. The car is about to be full of child car seats!

Raising a family with a husband who is a CPA for the Self- Employed® is interesting. Right after the New Year, things really

pick up for Toph. In January, people are thinking about the new year, and they’re setting goals and want to get things done right. As a result, January is often a very busy time for him.

No matter how hectic things may get, Toph makes it work. He’s a great dad, who, despite long days during tax season, isn’t going to miss a moment with his family.

–Ashley Sheldon

It starts to get a little less hectic in February, but as a shorter month, the “less hectic” doesn’t last long. Before we know it, tax season starts to reach its peak

Miso Caramel Apples

TAKE A BREAK

Inspired by Bon Appétit

This silky caramel recipe is spiked with miso for a complex, rich snack that won’t hurt your teeth

Ingredients

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4 Granny Smith apples 1/2 cup raw pistachios 1 1/2 tsp plus 1 cup sugar

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2 tbsp white miso, divided

4 Popsicle sticks

2 tbsp light corn syrup 1/4 cup heavy cream

3 tbsp sesame seeds

1/4 tsp kosher salt

Directions

1.

Heat oven to 275 F.

5–7 minutes, swirling infrequently, until caramel is a light amber color. Add cream and salt to caramel, whisking to combine. Transfer to a large mixing bowl and quickly whisk in remaining miso. To assemble, first roll apple in caramel, then in pistachiomixture, before resting on greased baking sheet.

2.

In a food processor, pulse pistachios and 1 1/2 tsp sugar. Add sesame seeds and 1 tbspmiso, pulsing until miso is fully broken up. Spread evenly on a rimmed baking sheet. Bake for 15–20 minutes and let cool. Meanwhile, insert a Popsicle stick into the center of each apple. In a saucepan, bring corn syrup, 1 cup sugar, and 2 tbsp water to a boil. Boil for

5.

6.

3.

Solution on Page 4

4.

7.

Let cool 30 minutes and serve.

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TOPH SHELDON CPA FOR THE SELF-EMPLOYED ® 9200 MONTGOMERY RD., STE. 7B CINCINNATI, OH 45242 513-342-4000 WWW.TOPHCPA.COM

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INSIDE 1 It’s Time to Get Off the ‘Hamster Wheel of Taxes’

2

The Secret to a Perfect Jack-O’- Lantern

2 Clients Win Battles With the IRS

3

A New Addition to the Sheldon Family

Miso Caramel Apples

4

Photographer Annie Leibovitz’s Major Money Problems

Toph’s Tax Nightmares

From Picture Perfect to Dollar Disaster In the world of photography, Annie Leibovitz is one of the most well-known names, recognized for her striking photos of celebrities and newsmakers. Leibovitz’s camera work has made her one of the most successful photographers ever — and certainly one of the richest. At one time, she was making $3 million a year working with Vanity Fair. But despite often making tens of thousands of dollars per session, Leibovitz found herself face to face with the IRS. In 2009, her money troubles peaked. She was on the verge of losing multiple homes and the rights to her own work. At the time, tax liens totaling $1.4 million had been placed on Leibovitz. She was also being sued for $700,000 for photography supplies and services she had neglected to pay. Sources said that despite her success in the photography world, Leibovitz was not good with money. But that may be an understatement. On top of the tax liens and lawsuits, Leibovitz was then sued again for “nonpayment” to a company that lent her $24 million. In order to repay the loan, the company wanted access to Leibovitz’s New York homes in order to sell the houses and recoup the losses.

previous financial success. Leibovitz refused to comment on that, but signs point to extravagant spending that had gotten out of control.

However, later in 2009, the lawsuit was dropped and the company behind the $24 million loan extended her loan repayment date. Terms included Leibovitz selling her New York City residences, which she did in 2012 —making a combined $28.5 million for her three townhomes. Leibovitz has also since resolved other debts and tax issues, but her current financial situation is unknown.

Leibovitz reportedly refused to cooperate. But there was also the lingering question of why she needed a loan of $24 million in the first place, considering her

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