How to be proactive with Tax issues
In the Boston Globe recently there was an article (An Inheritance damaged by delayed property taxes) that has reminded me to write this short explainer about tax notices. In the article a elderly home owner took advantage of a Massachusetts property tax quirk and was able to defer property taxes on her home for close to two decades. The problem arose for several reasons. First, she probably thought that “defer” meant “did not have to pay” and never informed anyone of the decision. Second, the children inherited the home in 2008 and did not notice the “Prior tax bills outstanding” on the bottom of the bill so the deferred taxes continued to accrue interest for another 10 years, eventually equalling a third of the the home’s value. And third, although the town followed the letter of the law there was not a good system in place to notify the inheritors of the outstanding taxes. This is a extreme case- read the whole article it’s very good- but here are a couple of tips on how to avoid a similar situation.
“Death and taxes”, right. A tax liability is not going to go away just because you ignore it. The IRS and municipalities will not forget what you owe and often times, as in the property tax situation, additional interest and fees will accrue. So, if you know you have a tax liability take care of it as soon as possible. If you do not have the funds to pay the whole tax bill get in touch anyway and you can work out a payment plan. Paying something and being cooperative is better than paying nothing.
Don’t be intimidated
The tax man is not out to get you they are just trying to collect tax that they believe you owe. As a business owner I get tax notices all the time and it used to really bother me, but just through repetition I have learned not to get stressed out. Now if I get a notice or have a question I pick up the phone and call (or have my CPA do it which I will discuss below) and I have found that the people in these offices are very helpful and nice. They know taxes are confusing and that most people are trying to do what is right so they will take the time to help you understand what is going on. If the inheritor of the house in the article would have called the town and asked what “Prior tax bills outstanding was” it would have saved 10 years of interest.
Read the tax notice – the whole thing
See above. There is a lot of information but you need to read the whole thing to make sure you understand what is going on and ask questions if you don’t.
Work with a professional
The technology tools for taxes are great but most people will get to a point in life where a little help is worth every penny. How do you know when that is? If you have questions that a google search can’t adequately answer, if you are receiving notices from the state or IRS, If you have business income or income from multiple sources you would probably benefit from a professional CPA. I recently received multiple notices from the state that said my wife and I owed several thousand dollars in penalties from our taxes in 2016. I had no idea what it was for, and I admit it stressed me out a little bit, but here is where a CPA comes in. I sent the notice to my CPA and signed a limited power of attorney so she could call on my behalf and the penalty was removed. It turns out is was a mistake concerning health insurance coverage and she was able to fix it with one phone call. Worth every penny that I pay her to take that burden off my plate.
Taxes can be scary but we all owe them and the states and the IRS are simply trying to collect. Don’t be scared to ask questions and get help when you need it. A good financial planner can answer many questions and let you know if you need a CPA. Most of all, the taxman has a long memory so don’t think ignoring it will make it go away.
If you have specific questions let’s talk.