Undercharging: A Problem to Avoid

August 31, 2023 by admin

Thursday, August 31, 2023 – I recently met with a client who is a self-employed contractor, receiving income reported on Form 1099. Like many in his situation, he views himself as more of an employee than a business owner. This mindset leads him, and others like him, to commit a critical error: undercharging for their services.

Many 1099 workers forget to account for taxes when setting their prices, setting themselves up for financial pitfalls down the road. They are not just responsible for regular income tax but also a 15.3% self-employment tax. Plus, they bear business expenses that W-2 employees usually don’t have to worry about.

This issue isn’t exclusive to 1099 workers; traditional business owners are also guilty of the same mistake. The misconception that low pricing will attract more customers is a dangerous gamble. As the saying goes, “We lose money on every sale, but make it up in volume”—a flawed business strategy, to say the least.

Marketing strategist Dan Kennedy wisely pointed out, “There’s no strategic advantage to being the second-lowest priced leader in your market.” Competing on price alone is a surefire way to race your business into the ground, hitting that dreaded $0 mark before you know it.

Raising your prices doesn’t just improve your bottom line; it enables you to offer superior service, leading to higher customer satisfaction. Satisfied customers tend to stick around, become repeat buyers, and provide invaluable referrals. These are the cornerstones of a sustainable and profitable business model.

Steven A. Leahy is a tax attorney in Illinois. He was the host of the long-running popular Radio Show “The IRS Radio Hour” heard every Sunday evening on AM 560 The Answer. Attorney Leahy is also the author of the book “Deal With Your IRS Problems Today!” You can get a FREE copy of this important book at FreeIRSBook.com. Or Call 24/7 (312)664-6649

IRS Goes Digital

August 11, 2023 by admin

IRS Moves Forward On Their Plan to Monitor All Taxpayer Activity

Recently, I wrote about the danger of the IRS gathering our tax data electronically and using Artificial Intelligence and Machine Learning to monitor taxpayer activity – your activity.

Today the IRS announced plans to go paper-free by 2026 using the funding in the Inflation Reduction Act. I pointed out that the IRS will use that money more for improving their information infrastructure, than auditing individuals and businesses. It wasn’t too long ago the IRS announced the “Free” tax return filing system. And now with the push to paperless filing – all that data will be ripe for data mining.

The IRS says this new initiative will improve customer service and efficiency. But do we really want an efficient IRS? The new IRS Commissioner, Danny Werfel, recently boasted about the IRS introducing the scanning of paper 1040s. He thought that was “history in the making.” Hey Werfel, it’s 2023! Scanning paper has been around for decades.

We have two things to hope for. First, the IRS continues its history of incompetence when it comes to modernizing IRS technology. After all, they have promised improvements since the 1960s, and we are still told how antiqued the IRS computer system is.

Second, Congress cuts more of that $80 billion giveaway in the Inflation Reduction Act. Congress did manage to cut $21 Billion from the IRS budget last May in the debt ceiling negotiations. Let’s hope for more. The IRS budget is still close to $20 Billion a year!

IRS launches paperless processing initiative

https://www.irs.gov/newsroom/irs-launches-paperless-processing-initiative

Remarks by IRS Commissioner Danny Werfel on the paperless processing initiative

https://www.irs.gov/newsroom/remarks-by-irs-commissioner-danny-werfel-on-the-paperless-processing-initiative

Who Wants an Efficient IRS?

July 22, 2023 by admin

The Inflation Reduction Act bankrolled the IRS to double in size. There has been lots of speculation about drastically increasing the number of auditors and, therefore, audits. The IRS “Enforcement” budget increased by more than $45 billion. What has been missed is the increased budget, more than $30 billion, directed at the IRS for “Operations Support” and “Business Systems Modernization.” You can read that as “information technology.” And don’t overlook that part of the enforcement budget that will be used for information technology as well.

That’s a huge commitment.

There are two major initiatives underway right now at the IRS:

1. IRS Direct File. Building a “Free” tax preparation system. Gathering more taxpayer data.

2. Implementing Artificial Intelligence Algorithms and Models. Analyzing taxpayer data.

Taken together, these initiatives will give the IRS, and therefore the government, easy access to the most intimate pieces of taxpayer information. According to Kaschit Pandya, IRS deputy chief information officer, “The idea is to take all of our data from within the IRS, place it in an enterprise data warehouse, and then build the analytics layer on top of it so that everyone has access to the data that they need in order to carry out an action or research something,”

By focusing on the increased audits, we are missing the real danger here. You can protect yourself from audits in large part. How do you protect yourself from the government gathering all your most intimate information and using it against you?

We have already seen the push to mandate our banks to provide all our banking information to the IRS – don’t think that push is over. We also see the move to digitalize our currency, which would give the government enormous power over when, where, and how we spend our money. And the revelations contained in the “Twitter Files” about government restrictions on what it deems “Misinformation,” should give us all pause.

Information Technology can free us – or imprison us. Which will it be? Personally, I don’t like the direction the IRS is headed.

Claim Your IRS Unclaimed CASH!

July 5, 2023 by admin

Wednesday, July 5, 2023 – The Internal Revenue Service, or IRS, is making a final call for taxpayers to claim tax refunds for the year 2019. Here’s the story

The IRS has issued a last-minute reminder to taxpayers, urging them to claim approximately $1.5 billion in unclaimed tax refunds from 2019. It is estimated that around 1.4 million individuals who filed their tax returns for that year are yet to collect their refunds.

Many taxpayers don’t realize they only have three years from the tax return due date to claim any tax refunds. Remember 2020? COVID pushed the filing date to July 17th. That means taxpayers have until July 17th of this year to claim any 2019 refunds. Unless you asked for an extension – then the deadline jumps to October 15th.
There is no penalty for filing a late return if a refund is owed. However, time is running out.

Taxpayers who are eligible to claim their refunds for 2019 should act fast. The deadline to submit their tax returns is July 17th or October 15th . After those dates, any unclaimed refunds will become the property of the U.S. Treasury, thank you.

The IRS advises eligible taxpayers to get their 2019 tax returns completed and filed BEFORE the deadline.

The IRS provides various resources on their official website, including forms, instructions, and tools to help taxpayers accurately prepare and file their tax returns. Additionally, free tax-filing assistance programs are available through volunteer organizations.

Most Taxpayers who haven’t claimed their 2019 refunds have until July 15, 2023, to do so. Make sure to gather your documents and file your tax returns promptly to avoid losing out on your unclaimed funds.

https://www.irs.gov/newsroom/time-is-running-out-taxpayers-missing-1-point-5-billion-in-refunds-for-2019-must-file-by-july-17

Unanimous Court Limits Taxpayer Privacy

May 19, 2023 by admin

Thursday May 18, 2023 – The Supreme Court released the much-anticipated decision in Polselli v. IRS. This case concerned a collection action of the IRS. So, I took a specific interest in this case.

While the case was often touted as a 4th amendment privacy case – that’s not how the court saw it. Rather, the court decided the case based on Statutory construction, not Constitutional Law.

Chief Justice Roberts delivered the Opinion of the Court. The court held:

“The question presented is whether the exception to the notice requirement in §7609(c)(2)(D)(i) applies only where a delinquent taxpayer has a legal interest in accounts or records summoned by the IRS under §7602(a). A straightforward reading of the statutory text supplies a ready answer: The notice exception does not contain such a limitation.”

In this case, [t]he parties did not argue, and the [court] below did not decide, the contours of [the phrase ‘in aid of the collection.'”

Justice Jackson wrote a concurring opinion (joined by Justice Gorsuch) in which she writes “Congress did not give the IRS a blank check, so to speak, to do with as it will in the collection arena.”

In her opinion, “the IRS is not necessarily exempt from notice obligations any time a tax-delinquency matter enters the collection phase.”

I only wish more Justices joined in her opinion.

While the Court upheld the IRS’s position in this instance, it did not define the full extent of the IRS’s authority to issue summonses, implying that there could be future clarification on this matter.