Q-1:

Subject: Unfiled Taxes

Hi. I was wondering what I can do about two years of un filed federal taxes.

I’m 22 years old. Own a small business. In the year of 2003 I filed an extension for my personal federal taxes. Payed est. tax I thought I would owe. Worked hard at my business (which I started in my teens). Incorporated and started switching it over to the LLC. When it came time for the extension to be over, I found out had to have major surgery, went through a deep depression.

The business flourished without me strangely. I did the minimum to keep the business running. Deposited the checks. Paid its bills etc.I spent most of those two years holed up in my apartment, buying groceries, surviving on the minimum, and staying out of public life. Surgery time came, everything went well and I was healthy again. Decided I had no reason be depressed.

Now I owe two years of un filed personal taxes and one year of un filed taxes on the LLC. I believe I have the money to pay it as I did nothing with the profit from the business, just let it setting in the account. I’m in a bit of a mess as I have no CPA for myself or the business.I want to get it all sorted out, pay the taxes to the IRS I owe, and hope to avoid jail time.

Could you lead me in the right direction?

Thanks,

A-1:

You aren’t that far behind on your tax returns that you need to be worrying about prison.  I know plenty of people much further behind than you are.

You absolutely must engage the services of a qualified tax pro who can help you get the past year tax returns prepared as accurately as possible.  Trying to do this on your own is asking for serious trouble.

If there are taxes due, your personal problems will be important in getting the IRS and State tax agencies to reduce or waive the late penalties for reasonable cause. 

Good luck.

Kerry Kerstetter

Q-2:

Kerry. Thanks a lot for the response. I value your opinion greatly because of your site and your writings.

There are  many CPAs in my area, most who either seem to have clients who are either employed clients, or large business. I cannot seem to find any who do small business specifically.

Do you have any suggestions for finding a qualified CPA?

Thank you,

A-2:

I know that there are tons of tax pros desperately looking for clients.  You may want to widen your search area.  Choosing one based on close proximity to you is the wrong way to go about it.

Unfortunately, we don’t have anyone else to whom we could refer you. If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you. 

Good luck.

Kerry Kerstetter

Follow-Up:

I will carefully read the advice on the page.

Thanks again!

 

 

While QuickBooks is the best way to keep track of money paid out to charities, it doesn’t have the ability to easily track and properly document noncash items donated, such as old clothes and furniture.  There are various ways to assign value of used items donated to charities.

You can use WAGs (wild ass guesses), the most common technique.

You can use one of the various guides, such as this one from the Salvation Army.

A computer program to do this that’s been around for several years is It’s Deductible.  Intuit purchased the company that produces it a number of years ago and now includes it in TurboTax.  A few years back, Intuit said they were going to add It’s Deductible compatibility to Lacerte, another company they bought (and the tax prep program we have been using since 1985); but so far that hasn’t been more than an empty promise.

H&R Block has its own version of the It’s Deductible program, called Deduction Pro, that also includes info on other Schedule A deductions. The website lists the price as $19.99.  For the past year or so, I have been subscribing to the free RSS feed from TechBargains and have learned about several money saving opportunities.  This morning’s feeds included one linking to a free copy of DeductionPro.  I downloaded it and checked out some of the values for noncash items and was impressed with how many it includes. When you install it, you have the option of setting it up for the year 2004 or 2005.

I pass this along for informational purposes.  As always, I must warn that no software, including the extremely expensive Lacerte programs that we use in our offices, can take the place of a knowledgeable and experienced professional tax preparer. Programs like those mentioned here should only be used to help you better organize your information for your personal tax pro.