Oct. 02, 2013 – New York, New York -For many freelance and consulting professionals, the love of running their own business abruptly ends at dealing with taxes. Calculating estimated payments, keeping up with expenses, and filtering through complex tax forms is enough to make most entrepreneurs avoid filing their taxes altogether. In fact, the Internal Revenue Service (IRS) estimates that it loses approximately $27 billion a year to non-filing—many of which are small businesses (IRS.gov).
To help self-employed professionals get back into the IRS’ good graces, MEDOWS, CPA, PLLC, a New York-based firm specializing in tax preparation, planning, and resolution for freelancers and consultants has created a three-step plan.
“We focus on getting individuals caught up, in compliance, and when necessary, reducing penalties and arranging a payment plan,” explained Jonathan MEDOWS, CPA, owner of MEDOWS CPA, LLC. “For most freelancers and consultants it isn’t a matter of not wanting to correct tax issues, it is more a matter of simply not knowing where to start to bring unfiled taxes up to date.”
MEDOWS said that while self-employed professionals can work with the IRS personally to bring their taxes current, many prefer to work with an experienced CPA firm to help them navigate the process and alleviate the stress that tends to come with dealing with the Internal Revenue Service.
MEDOWS CPA, LLC Offers a Three-Step Plan
The first major goal in MEDOWS CPA, PLLC’s three-step plan is to get on “good speaking terms” with the Internal Revenue Service. To accomplish this, MEDOWS CPA, PLLC advises freelancers to proactively establish compliance with the IRS, keeping in mind that while filing your taxes is against the law, the likelihood of going to jail is exceptionally slim—as long as you diligently work with the IRS to correct the issue.
The first two steps of MEDOWS CPA, PLLC’s plan are designed to help self-employed individuals get back on good “speaking terms” with the IRS. They include:
Step 1: Get all back tax returns filed
This includes current year and typically as far back as the previous six years. Prepare for this first step by collecting and organizing all your available records, including 1099’s, receipts, invoices, and other relevant documentation. The more documentation available, the smoother the process for catching up unfiled tax returns generally is.
Step 2: Be compliant with current year payments
Self-employed individuals also need to get caught up on their current year estimated tax payments as quickly as possible. Making current year payments will assure the IRS that non-compliance will not be a factor moving forward and it establishes good faith via paying current year estimates to further enhance an individual’s working relationship with the IRS.
Individuals in full compliance with the IRS will be in a far better position to address penalties and get into an arrangement to pay past balances owed—which is Step 3.
Step 3: Work to reduce penalties and arrange a payment plan
“At this stage of the process, an individual should address late filing and payment penalties if they can establish a good reason for their lapse in compliance,” said MEDOWS. “This process is called penalty abatement. In order to obtain abatement, you must make a sound argument for reducing penalties.”
Another option is the often-overlooked first-time penalty abatement waiver. This waiver allows first-year failure to file and pay penalties to be waived or abated if the taxpayer has a past history of compliant behavior. For eligible taxpayers, this is a one-time penalty amnesty. If the taxpayer has multiple years of penalties, the first time abatement can be used for the first year and reasonable cause for the other years if the situation allows. Reasonable cause exists when the taxpayer demonstrates that he or she exercised ordinary business care and prudence in determining the tax obligation, but nevertheless failed to comply.
“It is important that while individuals are seeking relief from penalties that they secure a payment arrangement with the IRS,” MEDOWS stated. “If an individual is not able to pay, the IRS will usually work with taxpayers to finalize these arrangements based on their documented ability to pay.”
For more information about MEDOWS CPA, PLLC please visit https://www.medowscpa.com.