Steven Klitzner, the IRS Tax Attorney, joined Good Morning Keys on KeysTalk 96.9/102.5FM this morning to talk about taxes.
October 15 is the deadline for people who have filed an extension.
Klitzner explained, “Many people have filed an extension, so they didn’t file April 15, now they must by October 15. If you don’t file, the penalty based on the money you owe is four and a half percent a month, until it hits 22 and a half percent. So it’s necessary, if you did an extension to file by October 15. Now that is not, and that was not an extension to pay. Payment was due April 15. You’re getting hit now with half percent a month penalty, even if you file and pay by October 15, you’re also getting hit with interest, which is now 8% so if you haven’t filed and you did an extension, make sure you get it in by October 15. Pay it as soon as you can, you’ll get a small bill for penalty and interest, which you also should just take care of. Many folks don’t, don’t file the extension and right away, four and a half percent plus a half percent for not paying, plus interest, it really adds up fast.”
The IRS is not likely to forgive the interests and penalties someone may owe.
Klitzner said, “Never on the interest, the interest is the interest. Penalty they’ll forgive if you have reasonable cause. People call me all the time and they say, all right, well, here’s what I owe. Well, what about the penalty and interest? Now I’m just telling you the tax, that’s all I’m going to pay. I’m not paying more. My answer is, yeah, you kind of are, because they don’t just waive it. Penalty you can get waived if it’s the first time, but interest goes up every single day. If you send them a check, by the time it clears, you may get a small bill for more interest that didn’t clear that. Of course, if it’s a small amount, they don’t come after you, maybe they’ll keep a refund. They’re not going to levy your account for a few dollars, but you will get those bills, and they’re very consistent with that. I had a guy call me, and he worked in a car dealership in the finance department, and he said, will they waive penalty and interest? I had to say to him wait a minute. If someone is late paying on the car, do you just say, don’t worry, we’ll waive the interest? The penalty if someone’s late and they call you and it’s the first time, yeah, you’ll waive it, but you’re not going to continue to waive it if they continue to be late. That’s really how the IRS is. They don’t make business decisions where they just say, okay, just give us this. It’s like, here’s our number, here’s what we want.”
What is the difference between S Corp and the C Corp for small business owners in terms of deadlines?
Klitzner said, “The S Corp doesn’t pay taxes. Whatever the S Corp profits goes directly to the owner with a K1. C Corps also pay taxes, and the deadlines for those, even with the extensions, has now passed. So it’s important that if you have an S Corp, if you have a C Corp, I really urge people, if they can file on time with the corporations in March and the personal in April, get it filed on time. Don’t just do an extension, push your accountant, get a good accountant, get them the information early, and push to get it done on time. One of the reasons is because if you do an extension, the IRS has three years to audit, just try to get it done on time. It’s great when you get your return done in April, because you don’t have to think about it all summer. You don’t have to call your account in September. You don’t have to work on it the last minute in October. So early is better than late, in my mind. The C Corp can get their extension too. Most small businesses are S Corps, yeah, most of the time when a client calls me and tells me they have a C Corp, I ask them why, and they say, I don’t know it was set up that way. Or they say it was supposed to be an S Corp. Generally, S Corps are better for the regular business.”
What about people who choose not to incorporate?
Klitzner said, “What they do is they put their business on their schedule C on their return and that has some advantages, although I think if you look at it, most of the time, the S Corp has more tax advantages. One big disadvantage about doing it on your own return on your schedule C, your business is you have more of a chance of getting audited than if you’re an S Corp. S Corps don’t usually get audited, and you still have a small chance. Don’t get me wrong, it’s still a very small percentage of audit, but it’s more likely if you put your business on your own return.”
We’ve seen some promises about taxes during this election season.
Klitzner said, “We’ve seen some promises from both sides, about no tax on tips, I think I’m going to just charge people like $1 an hour and have them tip me the rest of the money. I don’t know that that could ever go through. Tips are part of taxes. No tax on overtime, that sounds good also, but I don’t know that Congress would ever pass no tax on overtime. That’s part of your earnings. It’s part of your income. But that’s not up to me, and whatever law they pass, I’ll just deal with when it comes to taking care of my client’s IRS problems.”
It’s important to deal with whatever comes up with your tax return in a timely manner.
Klitzner said, “When I say they won’t waive penalty unless there’s reasonable cause. They never waive interest, I guess the question is, then, what am I doing? What am I doing for my client? Well, some of them can’t afford to pay, and they’re either not collectible, or we could do an offer in compromise, and those that can’t afford to pay, generally need time, and it’s my job to keep the IRS off their back and protect them from the IRS levying their bank account, their income, taking away their passport. Those are the things I need to do when I’m on the case, to kind of quarterback it, to kind of manage it so that the taxpayer can go on with their lives and still make arrangements to pay back the IRS over time. Some people pay it all. Some people, we make a deal and they pay less. Some people, the 10 year statute of limitations runs and a lot of it is forgiven.”
Klitzner has been in the business for many years and knows a lot of agents.
He said, “Because this is all I do, and I’ve been doing it so long, there’s no revenue officer on collections or revenue agent on audits or managers or area directors or territory managers or appeals officers that I haven’t dealt with before, unless they’re brand new. Then I introduce myself and start that relationship. The relationship, of course, I’ve got to advocate for my client, and I also have to balance cooperation, because you have to cooperate. You’re under the law, you must cooperate and give the IRS what they’re entitled to. But that doesn’t mean we roll over. We have to make the best deal for our clients and not set them up for failure.”
Unfiled returns really can compound upon themselves, but starting on the right path is important.
Klitzner said, “You have to get them filed first. Very often, people are under the radar, and the IRS is leaving them alone. But the IRS has started to go out and come in and say, we’re going to go after non filers. They’re generally looking at non filers with more income. They’ve collected millions of dollars already with their new program to go after non filers. That doesn’t mean the person with $100,000 1099, who hasn’t filed is safe, because the computer hits the button, and all of a sudden, the IRS says, if you don’t file your return, we’re going to file for you. Of course, if the IRS files for you, they don’t take any business deductions, they don’t take any dependents. They put you as single, everything that’s best for them, and you’re going to generally pay a lot more tax if they file for you. So the idea is, before you even get the first letter, at the very least, get the returns prepared. I always tell people they only have to go back six years. They don’t have to file in 2024 they don’t have to file 2017 and before. In a few months, it’ll be they don’t have to file 2018 and before, but at the very, very least, get started, get the returns prepared. It may not be as bad as you think it is, and you’ll be able to sleep at night.”
The biggest advice is don’t wait.
Klitzner said, “I’m going to give you one stat, the IRS has collected $1.3 billion from high income, high wealth individuals since the inflation Reduction Act, and in the first six months, they recovered $172 million from 21,000 high income people who haven’t filed their returns. So yes, that’s their focus. But the little guy is not exempt either. These are people who are making at least $400,000 but that does not mean you are safe if you made less. Get ahead of this. Everybody gets overwhelmed, and after a year, two years, and you fall behind, you just don’t know what to do. I get it 100% but whether it’s because the IRS makes you do it, or more favorably to you, whether you take it upon yourself to do it, you’ve got to get going and put this behind you. No matter what your age. If you’re 30, 40, 50, you’ve got a lot of years ahead of you. Why are you looking over your shoulders? If you’re 60, 70, years old, you don’t need this in your later years. You want to relax. You want to enjoy your life. You don’t need to be worried that the letter’s coming and here comes the IRS, because when they take control, it’s a lot more difficult than when we take control.”
Klitzner is local and in the community and not trying to handle your case from states away.
He said, “The common thing, the first thing a lot of people say to me is I hired this outfit out of Colorado or California and I thought, I don’t know, but it sounded good, and I should have known. I should have realized they weren’t going to help me. You know the local IRS people, when they see one of these national companies, they just roll their eyes, because they know they’re not getting cooperation. They know things aren’t going to get done, and it’s just you’re throwing away your money. If you’re going to throw away money, just give it to the IRS on the debt. You’re better off doing that than hiring one of these companies who you’re never going to hear from again. I always give a free consultation, I’ll tell you everything you need to know. If it’s something that doesn’t make sense to hire me because it’s not enough money, I’ll tell you what to do. But more times than not, people do need me, and I charge a flat fee, it covers everything to the end of the case, and I work with my clients to pay me over time. We don’t like to wait too long, but of course, we’ll work with them. I need to get started on many cases immediately, which is in my client’s best interest, and when I charge a flat fee, they also know that I have a real interest in resolving their case, as opposed to letting it hang around for years and years.”
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