Tax Debt Help – Foreclosure Tax Consequences
Every day, we are hearing that the real estate market seems to be in shambles, lenders have tightened up and thousands of people are having their properties foreclosed upon. While most foreclosures are made on personal residences, rental markets are also now leading to foreclosures on investment properties also.
Foreclosures can be a taxable event, and the tax consequences of foreclosure can be disasterous for investment property owners. In such an event, the owner can potentially face a three-fold situation of losing his or her property, by having to recognize income on the discharge of the mortgage and a capital gain.
Foreclosure should always be the last resort. You can get a letter from the IRS looking for back taxes (plus interest and penalties) from the foreclosure.
The history of the small business industry shows that most do not survive past two years. And even if you make it that far, you still have a lot of work to do. Every small business owner should pay attention to every aspect of the business to keep it operating and in good financial health. A lack of attention ultimately results in some common mistakes that will lead to your becoming one of those statistics.
Not paying your payroll taxes.
This is without question the quickest way to get the IRS to shut down your business. It can take the IRS years to catch up with businesses that have unpaid corporate income taxes, but it only takes them a matter of months to catch up with delinquent payroll taxes. They will come down fast and hard on business owners who are withholding taxes from their employees and not remitting those taxes to the government.
2. Getting bad advice from the wrong people.
Tax laws are complicated and everyone seems to have heard about saving taxes from their friend, neighbor or co-worker. In most cases, a little information is enough to be dangerous.
And with the wide availability of information, this only compounds the problem. Relying on bad advice may cost you down the road. Seek solid professional advice and get things done right the first time.
3.
Going into business with the wrong people.
This happens too often. The fact is that family and friends often make the worst business partners. Everything may seem fine, but when times get tough and money becomes an issue, things can get real ugly real fast.
Carrying too much unsecured debt.
Carrying too much unsecured debt on your business can be a double whammy. This is because you have to pay back the debt with the profits of your business. So not only do the debt payments eat up your cash flow but since the debt principal payments are not tax deductible, you business will most likely end up showing a profit with no (or very little) cash to show for it. Now certain types of businesses, such as real estate, will carry large amounts of debt by definition. However, if the debt is used in the purchase of an asset, then depreciation deductions will be able to help reduce the profit of the business.
Holding investment real estate in your corporation.
While it may be a stretch to say that doing this will destroy your business, it has the potential to cost you dearly. There are no good benefits of holding investment real estate in a corporation. In fact, many attorneys and CPAs consider advising a client to hold investment real estate in a corporation to be a form of malpractice.
S. Raines, Sr. Financial Advisor/Tax Preparer
Tax Debt Help – Knock, knock…it’s the IRS at your door!
The IRS normally will give you warning of a visit, but sometimes they can just appear at your home or business unannounced.
If they do, it is almost always due to unpaid taxes, specifically–unpaid payroll taxes. And while they are there, everything is fair game. They might want to look at your company checkbook, your cash register, your sales receipts–anything that can provide ammunition to be used against you.
So what should you do if an IRS officer or employee shows up at your business and starts asking question? That’s easy. Immediately tell the officer that you wish to consult a representative (i.e. a CPA, attorney or anyone else authorized to represent taxpayers before the IRS). If you request this, the IRS must stop the interview immediately. If the IRS agent does not do so, he or she will be in violation of federal law. Internal Revenue Code Section 7521(b)(2) says the following:
If the taxpayer clearly states to an officer or employee of the Internal Revenue Service at any time during any interview (other than an interview initiated by an administrative summons issued under subchapter A of chapter 78) that the taxpayer wishes to consult with an attorney, certified public accountant, enrolled agent, enrolled actuary, or any other person permitted to represent the taxpayer before the Internal Revenue Service, such officer or employee shall suspend such interview regardless of whether the taxpayer may have answered one or more questions.
And despite what you may have seen on Law & Order or CSI, asking for a representative does not make you look guilty. You are simply telling the IRS agent that despite their best efforts to blindside you, you want to consult with a professional that can help you prepare for the interview and provide the most accurate information possible.
If your first inclination is to tell the IRS agent to get off your property, do it the right and legal way, consult a representative and then respond to the IRS.
You can even have your representative handle the interview without your being present.
S. Raines, Sr. Financial Advisor/Tax Preparer
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