Happy 2012!  Here are the top viewed “Ask the Atlanta Tax Attorney“ blog posts for 2011 that we encourage you to read and review in order to prepare for 2012 taxes.

#1. Atlanta Tax Relief Lessons: Don’t Try an IRS Audit Alone

#2. How to Find a Legitimate Tax Relief Professional

#3. Atlanta Tax Relief Lessons: IRS Tax Problems and Divorce 

#4. What’s the Advantage of Hiring a CPA Versus a Tax Attorney?

#5. Get Tax Attorney Help to Survive (and Understand) an IRS Tax Audit

I recently published a “Small Business Tax Advice for 2011″ article to my Google Knol page (which will be discontinued in May 2012) – don’t worry! I will keep publishing articles.

It’s that time again to reflect on the passing of another year and to recall the triumphs and challenges experienced along the way. Yes folks, it’s tax season!  We at Gartzman Law Firm are in full swing accessing the available tax breaks before the end of the year. A recent article in the Houston Chronicle, Small business Q&A: Too late to save on ’11 taxes? spoke to the need for businesses to make sure they are taking full advantage of recent government incentive programs, that if applicable, can go a long way to adding to a business’s bottom line. But it is important to act quickly as these programs are due to expire soon. The following guidelines are designed to get busy small business owners to focus on closing their year with perhaps, more money in the coffers.

Georgia Tax Lawyer Advocates for Organized Records
For nearly thirty years as an Atlanta tax attorney and CPA, I have made it a point to educate both business owners and individuals on the importance of keeping meticulous records to avoid back tax problems; it cannot be overstated. Maintaining organized records throughout the year keeps you prepared should you have to present your books to the IRS.
First, take care of the following:

1. Organize Receipts and other related documents.
2. Balance and reconcile all records for the latest reading of where the business is financially.
3. Make an appointment with your CPA to discuss tax saving options.

Scrambling to gather important documents is a huge time-waster and could prevent you from participating in justified business deductions. The whole point to this exercise is to avoid tax problems including costly IRS business audits. Organized tax records provide a clear reporting of how well your business is run.

Atlanta Tax CPA Recommends 2011 Tax Deductions
You may want to consider large equipment purchases this year due to two large tax breaks targeted at small businesses. These special deductions allow businesses to purchase a piece of qualifying equipment and deduct the FULL PURCHASE PRICE from their gross income. This incentive was designed by the U.S. Government to encourage businesses to “invest in themselves” by purchasing equipment thus helping to stimulate the economy at the same time.

• The Section 179 deduction allows $500,000 (up from $250k previously) that is good on new and used equipment, including new software.
• “Bonus” Depreciation – 100% (taken after the $500k deduction limit is reached). Bonus depreciation is only for new equipment. (Businesses that exceed $2 million in capital equipment purchases can also take this).

Important to note: These programs will begin to phase out in 2012, so in order to qualify for the Section 179 deduction for the 2011 tax year, the equipment must be purchased and placed into service between January 1, 2011 and December 31, 2011. As a Georgia tax attorney and CPA, I typically schedule a consultation with my clients to determine if now is a good time to take advantage of any business deductions before making any large purchases of new equipment. If their business cycle is down, there may be less revenue to take deductions against and not always in their best interest to “spend money to save money.” Sometimes in these cases, a savings plan might be a better choice where salient advice from a tax attorney or CPA helps to make a more informed decision.

Atlanta Tax Attorney and New Health Tax Credits
One of the least known business tax credits could stand to benefit many business owners, yet so few understand it. According to the IRS, small businesses that contribute to their employee’s health care premiums, may be entitled to the Small Business Health Care Tax Credit:

• The maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities for tax years 2010 through 2013. On Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.
• Small business employers who did not owe tax during the year can carry the credit back or forward to other tax years.
• Eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit since the amount of the health insurance premium payments are more than the total credit – that’s both a credit and a deduction for employee premium payments.
• Small tax-exempt employers may be eligible to receive the credit as a refund, even if there is no taxable income so long as it does not exceed the income tax withholding and Medicare tax liability. Also, the credit is refundable.
• If you want to benefit from the credit this year but forgot to claim it on your tax return there’s still time to file an amended return.

According to a Kaiser Family Foundation’s 2011 survey on health benefits, very few small businesses, (about one third with fewer than 50 employees) were aware of their eligibility for the Small Business Health Care Tax Credit found under the Affordable Care Act (ACA).  As an Atlanta tax CPA, I have answered a litany of questions about the new health care provisions, but due to the complex nature of the new health care regulations and its controversy, it’s not surprising there are huge numbers of business owners who aren’t aware this tax credit could financially benefit their business’ bottom line. A seasoned tax attorney or CPA will be able to determine if their business qualifies.

Georgia Tax Attorney: Know Your Worker Classification
Classifying a worker as an independent contractor instead of an employee can save small businesses money, but stepped up IRS enforcement in this area has many unwitting business owners paying penalties instead of saving money simply because they don’t know the difference. The IRS gives a 20-point common law test that asks relevant questions to help determine the proper classification. As a tax attorney and CPA in Atlanta, Georgia, I suggest you look at it this way: how much control does a company have over the work being done? If a company is telling a worker not only what to do, but when, where and how to do it, providing the tools to do it and expecting him to clock in and out while he does it, he is probably an employee. If the worker is free to complete his tasks off-site within his own timeframe and on his own equipment while working for other clients at the same time, he is probably a contractor but remember, the IRS is focusing on compliance so take the time to be sure.

At Gartzman Law Firm, we review and counsel our small business clients as to the best deductions that save them money.  If you are a small business owner currently experiencing IRS tax problems, I encourage you to hire a tax professional to handle your case with expertise in handling small businesses. If you are overwhelmed with the day to day operations of your business, let the tax attorney and CPA who knows small business help you to keep your business up and running properly.

About Jeffrey S. Gartzman, Atlanta Tax Attorney and Certified Public Accountant
Jeffrey S. Gartzman is an accomplished Atlanta tax attorney and CPA who has been practicing tax law in Atlanta for nearly 30 years. He will help you resolve IRS and state tax problems, find tax relief and settle tax debt. Jeffrey S. Gartzman has a Master of Laws (LL.M.) in Tax from Emory University School of Law. Jeffrey S. Gartzman is a former IRS Taxpayer Education Program instructor. He is also an accredited Personal Financial Specialist with the American Institute of CPAs. Mr. Gartzman is a member of the Atlanta Bar Association, State Bar of Georgia, Georgia Society of Certified Public Accountants, American Institute of Certified Public Accountants, and other professional associations.

Small business is a powerful economic engine that collectively, is not really small at all.  According to a study by the Small Business Administration (SBA), small businesses employ half of all private sector employees and pay 44 percent of total U.S. private payroll. This strong economic sector represents the hopes and dreams of business ownership and often is seen as a gateway to the American dream.  However, this important economic sector has never been so financially challenged as it is right now. At Gartzman Law Firm, we see first-hand the stresses small businesses are experiencing and unfortunately see a shirking of their financial responsibilities that can end up hurting them more.

The recession has carried on for so long it has good business people barely holding on. But decisions such as skipping payroll tax payments to the IRS in order to keep the doors open can ultimately bring on larger and more expensive tax problems over time. As an Atlanta Tax Attorney and CPA for IRS Representation and a business owner, I believe all business owners deserve to know how closely the IRS examines small businesses when it comes to their tax liabilities. They closely scrutinize small businesses in large part for their contributions to the annual tax gap; the amount of taxes that should have been paid (reported) and what was actually paid. The current tax gap is hovering around $400 billion dollars and is a priority of the current administration to reduce. To discourage underpayment, the IRS has placed severe penalties and interest on uncollected funds thus avoiding tax payments has become a more expensive and hard to hide from proposition.

There are two areas where small business owners frequently create IRS tax problems for themselves: delinquent payroll / employment and incorrect employee classification. Understanding how these following issues can become problematic may just deter a struggling business owner who might be tempted to use allotted IRS funds for business operations or anything other than paying Uncle Sam what he’s owed.

• Delinquent payroll / employment taxes – Payroll withholdings collected from employees are considered in “trust” by the business owner until paid to the IRS. If not paid by the due date, the IRS can invoke Trust Fund Recovery Penalties (TFRP) to anyone who willfully fails to collect or pay. This action causes payroll tax penalties of 100% of the original amount to be assessed personally against the responsible parties. Depending on the size of the company this can be significant.

• Incorrect employee classification – Business owners can get into trouble if they do not know the difference between an independent contractor and employee. The IRS posts a 20-point common law test that an employer could take to determine classification. Understanding the difference is necessary should a small business owner be exposed to an IRS audit that determines underpayment for your “employee.” This breach can make you liable for employment taxes, plus interest and penalties, if a worker is incorrectly classified as an independent contractor.

As a Tax Attorney practicing in Atlanta, Georgia, strict adherence to tax laws is the first order of business. Penalties and interest for delinquent business tax liabilities are extremely high and an unnecessary waste of business capital. For small and fledgling businesses, consider the following factors: the large capital investment in the business, a means of income for owners and employees, as well as an owner getting to do what they love. With so much riding on the business to succeed, one can understand the difficulty in keeping up with tax obligations when you are trying to keep the lights on.
Recognizing the current economic pressure felt by small businesses, the IRS has responded by adjusting some of their requirements calling this a series of new steps to help people get a fresh start with their tax liabilities and help delinquent business owners become current with payments. IRS commissioner Doug Schulman understands small business importance in the nation’s economy. These steps are both good for challenged business owners as well as for the tax system.

New and improved IRS lien processes include:

• Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.

• Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.

• Withdrawing liens in some cases where a taxpayer enters into a Direct Debit Installment Agreement.

• Creating easier access to Installment Agreements for more struggling small businesses.

As a Georgia Tax Lawyer, I encourage small business owners currently experiencing IRS tax problems that may include tax liens that the time is now to take advantage of these IRS changes. If you are overwhelmed with the day-to-day operations of your business, let a tax attorney and CPA expert in small business tax resolution handle your case. These tax professionals understand a small business owner’s need to balance operational cash flow with tax obligations. By hiring their services, you can take the IRS pressure off and keep the business up and running smoothly.

These days, it’s not hard to see so many people in serious financial trouble. We at Gartzman Law Firm, see too many clients facing such dire situations on a daily basis. This economic downturn has gone on for so long; it has affected people in every industry and at every economic level. It has also created a new sector: the chronically unemployed or underemployed worker. Many who have joined this sector, often through no fault of their own, are struggling to keep up with their obligations and find themselves sinking financially further and further underwater without a life ring.

The financial troubles that result from little or no income can be due to several factors including the following: prolonged unemployment or under-employment, an extended illness, sickness and or the death of a loved one. Individually, these troubles can throw any household into turmoil. Coupled with the added stress of little or no income and the pressure to pay the mortgage to keep a roof over their heads, has many turning to foreclosure for relief.

According to a recent Realty Trac study on Georgia foreclosures:

• 1 in every 352 housing units in Georgia received a foreclosure filing in September 2011

• Georgia ranks fourth in the nation for the most recent foreclosure activity at 11,552. (California is number 1 with over 53,000 followed by Florida and Michigan).

Given abysmal statistics like these and an economic recovery slow to materialize, it’s sad to see so many families feeling forced to let their house “go back to the bank” and default on their mortgage. However, while the relief of this burdensome debt might seem appealing in the short term, there are tax ramifications to this decision that, if not resolved, could quickly bring back the financial stress again.

Before considering the drastic steps to foreclosure, understand that there may be more options available to you.  As a tax lawyer based in Georgia, I recommend that you consult a qualified CPA or tax attorney to help you wade through the details of your individual situation in your specific area. Their purpose is to provide you with the best financial options available helping to ensure these tax problems become a thing of the past.

The prevention of foreclosure is always advised and should top the list for consideration. There are many government resources available to distressed homeowners who perhaps need additional information. One place to start is the US Department of Housing and Urban Development website to educate yourself on such topics as: rights as a homeowner, seeking help to work with your lender and how to avoid scams targeted at desperate homeowners.

If after weighing all your options foreclosure seems to be the only solution, consider that you could be trading one problem (getting out of a mortgage) for another (owing additional taxes).

Here are a few things to be aware of if foreclosure becomes your only option:

Debt cancellation
The IRS states that if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. This means that if you cannot pay your mortgage balance, the bank forgives or cancels that debt and reports that amount to the IRS to tax that same amount as income. There are exceptions that may apply to many homeowners:

• The Mortgage Debt Relief Act of 2007 (set to expire in 2012) allows for a taxpayer who defaulted on the loan to their primary residence to exclude the cancelled loan amount as income on their next tax return.

• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

There are several exceptions to the taxability of cancelled debt, such as insolvency or bankruptcy that your tax attorney or CPA will take into consideration for your case.  Given the current economic state, the IRS has adjusted some programs aimed at distressed homeowners with tax problems that deal with federal tax liens on homes. While these programs are helpful, be aware of whom you are dealing with; the IRS is not going to give anything away without taking something in return. At the end of the day, the IRS is still a tireless collection agency out to get what they’re due. Without proper IRS representation on your side against the IRS that can help plan a new financial road map, you may be doing damage to your own case. These tax professionals understand how the IRS works and they use that knowledge and experience to bring resolution to a client’s tax problems.

When to hire a Tax Attorney and CPA for IRS Representation
Certain cases can be handled with the IRS directly but if you find yourself considering a harsh and difficult decision like foreclosure, its tax implications and your financial future, you shouldn’t face the IRS without equal footing. Being a Tax Attorney and CPA based in Atlanta, I recommend that in situations that require both tax and legal advice, it’s best to hire professionals who best understand IRS business practices and can navigate those often complicated, murky legal and tax waters.  These legal and tax professionals work directly with the IRS on behalf of a client to resolve the following tax problems: an IRS notice, IRS lien, IRS appeal, including an Offer in Compromise, setting up an IRS payment plan, or penalty abatement, bankruptcy discharge of tax review. By taking the first step and calling for a consultation, you can begin to plan a brighter future on sound financial footing.

About Jeffrey S. Gartzman, Atlanta Tax Attorney and Certified Public Accountant
Jeffrey S. Gartzman is an accomplished Atlanta tax attorney and CPA who has been practicing tax law in Atlanta for nearly 30 years. He will help you resolve IRS and state tax problems, find tax relief and settle tax debt. Jeffrey S. Gartzman has a Master of Laws (LL.M.) in Tax from Emory University School of Law. Jeffrey S. Gartzman is a former IRS Taxpayer Education Program instructor. He is also an accredited Personal Financial Specialist with the American Institute of CPAs. Mr. Gartzman is a member of the Atlanta Bar Association, State Bar of Georgia, Georgia Society of Certified Public Accountants, American Institute of Certified Public Accountants, and other professional associations.