By Howard Abrams
PBS Tax & Bookkeeping
Q: It’s almost halfway through the year, and I don’t have a system for keeping control of my records. I have no idea what’s in store for me taxwise for the next filing season. What can I do so that I have a better handle on my business?
A: The most important thing is to keep in mind that tax time is not the only time of year to gather your paperwork. You should be getting your paperwork ready for taxes throughout the year, and you should know the financial status of your business year at any point in time.
In other words, prepare a profit and loss statement. A profit and loss statement is used to help plan for paying your taxes. It can also help you spot variances in your business that you may be able to adjust to save dollars.
Based on the profit and loss statement, you should also have your tax adviser project your tax situation during the year. That way you will get a heads up if your tax bill is going to be higher than expected, and you can start saving up to pay it.
Keep in mind that you should probably set aside 25 percent to 30 percent of the money you earn for possible taxes, including the portion that you are sending the IRS through estimated taxes.
Q: I’m currently involved in an audit with the IRS, and I’m unhappy with my agent. What should I do?
A: You have every right as a taxpayer to talk to the manager of the audit group about the agent and voice your complaints. You can then try to work with the agent again or request a different agent. If you try to work it out, you can always request a different agent later.
Q: I am having a tough time with an IRS audit agent and with the audit group manager. I can’t get to first base, and I am frustrated. They have issued an audit change report disallowing certain expenses. What can I do?
A: You have the right to an appeal. The beauty of an appeal is you will be able to sit down with an unbiased appeals officer and present your case. This informal one-on-one meeting is called a hearing and can be quite successful.
Q: I received a letter from the IRS that I have 90 days to contest the finding of the IRS in tax court. I don’t want to go to tax court. What should I do?
A: If you received the infamous “90-day letter,” you probably have been lax in responding to the IRS regarding balances due to them. In most cases, you can write the court to request a hearing such as described above. The important thing is – don’t panic, but do respond.
Q: I don’t want to deal with the IRS on any level. What can I do?
A: You can always hire a representative such as a tax preparer or tax attorney to handle your tax problems on your behalf.
Q: I neglected to include on my tax return equipment acquired and put into service two years ago. Consequently, depreciation has not been claimed on the asset. What can I do?
A: A tax rule was recently passed that will allow you to file Form 3115 – application to change accounting method. This will allow you to take the amount of missed depreciation on your current tax return. This is a far cry from a few years ago. If you forgot to take depreciation you used to be out of luck under the “use it or lose it” rule. LL