Every month, I am going to post the top five tax questions that I am asked and their answers.
Question:
I owe $50,000 in back taxes. What should I do?
Answer:
First of all don’t panic. I am not a doctor, but I know that there is a direct correlation between an IRS Notice and a heart attack. You have many options when you owe the IRS money. You also have rights when you owe money. The most important thing you have to do is open each IRS notice that you receive. When the notices are sent certified they are serious. You will receive an Intent to Levy Notice first. This will come certified. The next notice you will receive, about 30 days later, is an Intent to Levy your state refund. This will also come certified. The next notice that you will receive, about 30 days later, is a Final Intent to Levy Notice. It will come certified and be an important notice. You have 30 days from receipt of this notice to act. If you fail to act, the IRS will file a lien against you and may begin levying your bank account, and garnishing your wages. Before it gets to this point, see a professional. We can ask for an installment arrangement, or we might be able to negotiate your tax debt so that you can pay the IRS less than what you owe them.
Question:
When can we start filing tax returns?
Answer:
Even though Congress didn’t pass legislation until the end of 2014 that effects 2014, we can begin filing corporate tax returns on January 9th and personal tax returns January 20th.
Question:
What is the difference between an LLC and a Corporation?
Answer:
A Corporation and LLC are legal structures, and are completely different. Both corporations and LLC’s (short for Limited Liability Company) enjoy limited legal liability. Basically if your business is sued and a judgment is entered, typically only the assets of the Corporation or LLC are at risk.
I like to think of a corporation as being very structured. They have rules that you have to follow. You have to have corporate meetings, you can only be taxed one of two ways. The rules are very hard and fast, and if you don’t stick to the rules, you can get into trouble.
On the other hand, an LLC is flexible. The governing document of an LLC is the operating agreement, and when it is written it can be very flexible in the way that the LLC is governed. LLC’s can be taxed anyway that you want them to be taxed. I prefer LLC’s to corporations.
Question:
What is a Trust?
Answer:
A Trust is a legal document that has three parts. You have the grantor, who is the person writing the trust, you have the trustee, who is the person or entity that follows the trust document, and you have the beneficiary which is the person the Trust is written for. You have a Revocable Trust, meaning you can change it, and an Irrevocable Trust meaning it can’t be changed.