When I started preparing tax returns and gaining a client here and there, I had no idea how many business owners needed help getting back on track with filing their past due tax returns. Over the last several years, we have helped many business owners with their back-taxes and greatly reduced their fears.
Here is a general outline of how to get back on track with your unpaid taxes:
- Focus on the last 6 years of tax returns. I learned early on from a successful tax attorney, that the IRS is mostly concerned with the last 6 years of tax returns. (I would gladly do your last 20 years of books and tax returns and charge you, but I am way too honest and nice to do that!) Taking care of the last 6 years of returns saves us both time and money. It hasn’t failed us yet!
- Contract with a CPA or Tax Attorney to represent you and speak to the IRS for you. Would you want to defend yourself in court? We have a CAF (Centralized Authorization File) number with the IRS which authorizes us to talk to the IRS on client’s behalf. The IRS is much less likely to question a CPA’s judgment than the actual taxpayer. We have our client sign a form 2848 which authorizes us to speak to the IRS to handle any tax matters.
- Get the IRS transcript records – A lot could have happened in the last 6 years, so we want to make sure we obtain all the W2’s, 1099’s etc. The business owner will not likely remember all the tax documents have been filed. It is also common that thieves will look for SSN’s that have not filed tax returns to cook a tax return and receive a large refund to their bank account. Getting these records will allow us to check for all activity in the past 6 years.
- Start with the farthest year back and work forward. For example, we are in 2019 now, so we would first complete the 2013 tax return. The 2013 return would have data that rolls into the 2014 tax return, and so on. Going backwards helps complete the picture when we get to the current year.
- Make sure to have accurate books for each year! We also help complete the books for our clients in QuickBooks Online, if they have not been prepared. We use the bank statements and work with the business owner to prepare the financial statements with proper financial reporting. It’s very important to perform the bank reconciliations too, to ensure accuracy of the books. If a company has high revenue with a low profit, the IRS might want to do a full-blown audit. If the books are messy, the IRS may only allow for the business owner to take half of their business expenses! Your financial statements must be on point.
- Setup an installment agreement – Once the Federal & State taxes, penalties, and interest have been figured out for the last 6 years, the CPA can help setup an installment agreement. The IRS is typically reasonable toward a fair monthly payment amount if steps 1- 5 above, and 7 below, have gone smoothly.
- Get current & compliant – For the IRS to make a deal with the business owner, they want to make sure the business owner is current and compliant. The business owner needs to get on a W2 and start making quarterly estimated federal and state tax payments to avoid this issue happening again.