Too Early To Think About New Year's Resolutions?

In my professional practice I work with a variety of different types of financial planning clients. Some need help managing significant amounts of wealth. Others need assistance getting out of serious amounts of debt. One thing is usually common in all of my clients. They share a strong desire to make the smartest decisions possible with their money. So as the year comes to a close I wonder if it is too soon to start thinking about making New Year's Resolutions?

2009 was a difficult year financially for many individuals and families. For those with tax problems the financial stress was likely increased dramatically. With a New Year around the corner, the hope of better financial life is a goal for many. The real challenge for people with tax and other debt problems will most often be related to more than just knowing what to do to improve their financial lives. The ultimate challenge is developing positive money related behaviors that lead to meaningful change.

If you have ever made a New Year’s resolution you probably understand the difficulty of changing any behavior. Perhaps you were not ready for change. Maybe you did not know how to implement change the best way. Frequently these resolutions are abandoned due to frustration and discouragement. Lasting change is rarely a simple process. If you have ever tried to lose weight, give up caffeine, stop smoking, exercise more, etc. you probably realized that a simple solution does not exist for everything.

Behavior change can be difficult to maintain over the course of time. Tax and financial planning undoubtedly involves a substantial commitment of time, effort, and emotions and is a form of behavior change. Fortunately, there is a technique that has proven to be the most effective method of achieving tax and financial freedom- Tax Resolution Planning.

If you are looking to change your financial life in 2010 do not wait on the New Year. Take action now and set a strong foundation with an action. Do more than just have good intentions when it comes to important money related decisions next year. Create a written tax and financial plan and implement it. Financial freedom may be closer than you think.

Best wishes for a Merry Christmas and a Happy New Year!

Financial Life Planning and Tax Resolution

Financial life planning is about more than just money. A financial life planning approach can provide a deeper meaning to the management of personal finances. Every person going through the tax resolution process needs a vision, purpose, and a plan if they want to succeed. George Kinder is a well respected financial planner and a leading proponent of the life planning movement within the financial planning industry. His financial counseling process includes three questions that are popular for their ability to help clients focus on what really matters to them about money. While I have adapted a version of these questions for the tax resolution client, similar questions are also asked of my Fee Only financial planning clients.

The main purpose of this exercise is to begin thinking about what you want your money to do for you. The first question is designed to initiate the process of thinking about all of life’s possibilities; the second and third questions are created to help people with tax troubles focus on their priorities in life.

Since the accumulation of excessive tax and consumer debt has such an immediate and overwhelming impact on household finances it is easy to lose sight of long-term goals and dreams. Looking beyond the current state of financial stress is an important way to help prioritize goals during the tax resolution process. It also helps to have something to work to achieve while reinforcing the need to attack your tax problems with passion and enthusiasm.

The life planning questions below should be used to help you identify what you want to get out of life. Since money plays such an integral role in our lives it is important that you are able to understand your values that lie beneath the surface of your financial world.

1. Imagine that you have paid off all of your tax and consumer debt. You owe absolutely nothing and have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything?

2. Imagine that you visit the doctor and he or she says you have only five to ten years to live. You will not feel any pain or sickness, but you will never know when death will actually come. What will you do? Will you change your life? How?

3. Finally, now try to imagine that your doctor says you have only one day left to live. Ask yourself: What did I miss? What did I not get to be or do? Do I have any regrets?

This three questions exercise is designed to tap into the heart’s core. What are your values? What is your vision?

Now is the time to start thinking about a life without any debt. Setting a goal to resolve a tax liability is usually the #1 priority during the tax resolution process as it should be. It can be difficult to look beyond the stress of the here and now when it comes to tax and financial matters. Establishing life planning goals add more meaning to the tax resolution process. If you have avoided debt and do not have a tax problem, these questions are just as relevant during your financial life planning journey.

Creating an Investment Policy Statement

Do you have a written plan in place to guide your investment decisions? If not, how do you know if your investment plan is on track to meet your financial life planning goals?

An excellent way to make sure that you follow an investment plan and have a measurement stick in place to track your progress is the setup an investment policy statement. A solid investment plan requires proper direction and guidelines that will help any investor stay on track regardless of the situation. Plans will frequently change or be altered over time, but if you have a plan in place from the beginning you can always figure out whether or not you are on track to meet your financial goals. That is why you need to put your investment plan in writing and create an investment policy statement to guide your investment decisions. An investment policy statement is a written document that defines how an investment portfolio should be managed.

An investment policy statement typically answers the following questions:

* How much do you intend to invest each month?
* How many years will you be investing?
* What is the expected rate of return for the portfolio?
* What is your target asset allocation mix?
* What are your allowable assets?
* Which no-load index mutual funds or ETFs fit into those asset categories?
* What are the benchmarks for the portfolio (DJIA, S&P 500, FTSE, etc.)?
* How often will you review your investment plan?
* When will you rebalance your portfolio?

An investment policy statement is critical whether you are working with a trusted advisor or using a do it yourself approach to investing. Next time you review your investment performance take a few moments to review your investment policy statement. If you do not have a written set of guidelines for current and future investments you should go ahead and put your game plan in writing.

Tax Debt and IRS Levies

Can you afford to let the IRS levy your bank account or garnish your wages? That is what could happen if you owe back taxes and avoid their attempts to contact you.

IRS collection activities are negative events and represent anything but freedom, and therefore should be avoided. You must be proactive and take action to avoid IRS collection measures such as wage garnishments, bank account levies, property seizures, and liens placed on your property. It is important to know what the IRS is capable of doing. Most people find this knowledge a helpful motivator to stay on track with the tax resolution process. If the collection process has already started you should still proceed through the tax resolution process quickly and accurately to start resolving your tax problems on your terms rather than simply accepting defeat and allowing the IRS to control your financial life.

What does the IRS typically attempt to levy?
The IRS may intent to levy any federal payments due, retirement benefits, Social Security benefits, wages, or employee travel advances or reimbursements. The IRS can also levy property such as real estate, automobiles, business assets, bank accounts, wages, commissions, and other income. A levy is a seizure of property. The IRS will try to levy assets unless you TAKE ACTION. Why allow the IRS or any creditor to take control of your assets on their terms? If you owe taxes you need to pay them (or at least come up with some type of tax resolution alternative). However, you need to have a plan to pay them on your terms and not the terms of the IRS.

The IRS may involuntary collect the tax debt owed to them through different types of levies. A levy is served after the IRS has exhausted all other collection efforts to encourage taxpayer compliance. Levies commonly attach a taxpayer’s bank account, salary and wages, and/or business accounts receivable.

The IRS is required to release levies in several circumstances, including:

• The levy is creating an economic hardship.
• The taxpayer agrees to make an Installment Agreement.
• The liability is no longer owed.
• The 10-year statutory collection period has expired.
• The levy was wrongfully served.
• An Offer in Compromise is accepted for review.

The two circumstances most often utilized to request a levy release are when the levy is creating an economic hardship or when the taxpayer agrees to make an Installment Agreement. In both of these situations, the taxpayer must provide a Collection Information Statement for Individuals and Self-Employed Individuals (Form 433-A) and/or Collection Information Statement for Businesses (Form 433-B). To obtain a levy release, the taxpayer must also file all required tax returns and be current in estimated payments or Federal Tax Deposits, if required.

The IRS usually will not release a levy until the taxpayer has proposed a solution to the delinquent tax problem and demonstrated that they will remain in compliance with future obligations. In certain circumstances, the IRS may release a levy if the taxpayer promises missing tax returns or financial information by a fixed date, but this cannot be counted on. It is always best if the taxpayer can get all of the needed documentation before contacting the IRS for a release of levy.

In conclusion, if you are facing the possibility of an IRS levy it is always in your best interests to take action. Do not avoid the tax problem. A tax resolution plan is a proactive strategy that will help you resolve tax debt problems the best way possible for your situation.

Contact LifeSpan Financial Planning at 877-TAX-9110 if you are interested in finding out more about using a Tax Resolution Plan to overcome tax problems.

Creating a Personal Spending Plan

The definition of insanity may be doing the same things over and over again and expecting different results. I think the key defining element of seeking financial change (and eliminating insane amounts of debt) is doing the right things over and over again and actually getting positive results. Spending with a plan is the right thing to do, and it must be done over and over again.

The creation of a personal spending plan is one of the most important steps of the tax resolution process. A personal spending plan is also the foundation for achieving financial freedom. On the surface a spending plan or budget is extremely basic. Most people do not even have a simple budget much less a spending plan to guide their financial decisions. The purpose of this tax resolution step is to create a personal spending plan that will help you make sure that your money is working for you the best ways possible. Spending plans are also needed to resolve your tax debt and reach your other life planning goals.

A budget is generally defined as:

a) an itemized summary of estimated or intended expenditures for a given period along with proposals for financing them,

b) a systematic plan for the expenditure of a usually fixed resource, such as money or time, during a given period, and

c) the total sum of money allocated for a particular purpose or period of time.

When used as a verb the word budget means to plan in advance the expenditure of something. These definitions each focus on the action of planning. Budgeting is defined as estimated projection of the amount of certain expenses. During the tax resolution process you should use the word budget as a verb and take action. Tell your money where you want it to go rather than trying to figure out where it all went or worse, spending more than you have available and relying on credit cards and debt to get you through the month.

Unfortunately, most people approach the budgeting process the wrong way and do things backwards. They use a legal pad, spreadsheet or budgeting software and track where spending occurred across various categories (food, utilities, credit card bills, etc.). This is a great way to see where your money went during the previous month. But it is a horrible way to plan where your money will go in the future. During the previous step we analyzed where your money has been going in the past. Going forward, you should use the information gathered during the cash flow analysis to create a spending plan or budget.

The budgeting process is often misunderstood because it is typically viewed in a negative manner by the people who need one the most. We have discussed at length how many individuals in debt display problematic financial behaviors. One of the biggest problem behaviors is trying to manage personal finances without a plan. The lack of a personal spending plan or budget is common in the majority of people with tax problems. Many people are resistant to change when it comes to budgeting. Some tax resolution clients view a budget as a form of constraint that inhibits freedom. This is ironic because a personal spending plan will actually lead to financial freedom if used consistently.

Every single household spending plan is unique and each person will be presented with his or own set of challenges. Do not expect your personal spending plan to work perfectly the first time around. It may take a few months to figure this process out. This is normal. Whatever happens on a month to month basis, DO NOT QUIT and NEVER allow frustration to get in your way. Remember that the LifeSpan Process of Tax Resolution and Financial Freedom requires you to take action to replace negative financial behaviors with positive alternatives. The old way of doing things got you into this mess. Replace the old way with a new and improved way of handling your personal finances.

How Does a Personal Spending Plan Work?

A personal spending plan is a written plan to guide your spending habits and provide you with important direction for your money. Operating without a budget or personal spending plan can put you on the fast track to tax problems and debt while giving you a strong sense of feeling completely out of control financially. Following through with the budgeting process and sticking with a personal spending plan will help you assume control of your finances and will empower you to make smart financial decisions.

You cannot eliminate your tax and financial problems without a spending plan. You will not achieve financial freedom with a savings and investment plan. A personal spending plan will help you resolve your tax problems. Subsequently it will allow you to reach financial freedom by maximizing your ability to pay off your tax debt as quickly as possible and then save or invest as much as possible for your life planning goals.

Be prepared for everyone around you to think you are going insane when they see you are implementing a spending plan. Friends and family may act confused or completely freaked out by the fact that you have seen the light and are now operating on a budget. Most people just do not get it. They are probably spending without a clue themselves. That is why most Americans are in debt. It is important to realize this in advance because you should be prepared to explain to your friends and family why you are choosing to manage your money in a more effective manner. There is no need to be embarrassed or ashamed by the fact that you actually have the courage to say enough is enough- I am taking control of my life!

Most budgets fail because they lack purpose. During the tax resolution and financial freedom process your purpose is clear. Eliminate the tax problem, get out of debt, and focus on more important financial and life planning issues. When you create and stick with a personal spending plan never lose sight of the main purpose of following a budget in the first place- tax and financial freedom.

Tax Resolution and Financial Planning

What role does financial planning play during the tax resolution process? Financial planning is about taking control of your finances and is often defined as the process of meeting life goals through the proper management of your money. The planning process helps people make smart decisions about money and prepare for the demands of the future. More importantly, financial planning is about a better now. Some obvious demands are life's major events: getting an education, buying a home, retiring, providing for your children and even their children. Financial planning also concentrates on day to day concerns such as organizing your finances and preparing for the inevitable surprises that occur in life.

So, how does the financial planning process work when a financial crisis related to a tax problem occurs? Tax resolution is a financial planning challenge that is just as much about replacing ineffective financial behavior patterns of financial decision making with more positive ways of managing money and paying taxes as it is getting rid of the tax problem itself. Therefore, tax resolution planning is a natural fit with the financial planning process.

SMART Financial Life Planning Goals and Objectives

Whether you are working with a professional or creating your own financial plan, a comprehensive list of goals and objectives is an important starting point in the establishment of a tax and financial plan. Many people make the mistake of jumping into certain aspects of the financial planning process without a clear sense of direction. Even if you are not working with a planner you should start the planning process with specific goals and objectives.

First, start by making a comprehensive list of the things you would like money to help you accomplish in life. Then rank these goals and objectives from the most important to the least important. Establishing personal goals and objectives is your opportunity to identify what is most important to you. There are no right or wrong answers! This may seem like an easy step. However, this step should not be neglected. Goal setting will help define what you look to accomplish during the financial life planning process.

The following are some of the most common tax and financial planning goals that people generally set. I encourage people to be honest with themselves when ranking goals and objectives. Do not feel constrained by this list by any means. Add your own goals if this list does not include an important area of concern in your life.

Rank from 1 (most important) to 12 (least important).

Level of Importance Tax and/or Financial Planning Goal

______ Complete a planned major purchase (home, rental property, automobile, boat)
______ Increase Net Worth through, savings, investments
______ Establish a debt reduction plan to manage consumer debt
______ Manage income and expenses to maintain good cash flow
______ Minimize current income taxes
______ Ensure a comfortable retirement with income to maintain desired lifestyle
______ Provide education funds for children or grandchildren
______ Maximize the benefits of owning a business, provide for business continuation
______ Provide cash and income for survivors in the event of death
______ Protect assets and income against loss in the event of disability
______ Protect property from loss by natural or legal disaster
______ Pass money and property on to the next generation, minimize potential death taxes
______ Achieve Other Goals (Be Specific). Examples include: change jobs, career change, self-employment, learn a new skill or hobby, lose weight, improve physical fitness.

Life Planning Goals

Next, try to set goals that go beyond the traditional areas of focus listed above. These financial life planning goals should tap into your passions and values. These goals provide deeper meaning and purpose to the entire financial planning process.

Life planning goals generally fall into seven different categories. Take a moment and write down your life goals for each of these areas.

• Family
• Career
• Social
• Physical
• Spiritual
• Financial
• Intellectual


Other goals: ____________________________


After you have ranked your goals and their level of importance take the top three and write them down. Make sure that your goals are SMART and follow the guidelines below.

How SMART are your goals?

S = Specific (Be clear and precise)
M = Measurable (Identify how will you measure progress and success)
A = Attainable (Set goals that you are capable of accomplishing)
R = Realistic (Know your limitations but never underestimate your own abilities)
T = Timely (Set a time frame regarding when you would like to accomplish your goals)

The Three Most Important Goals in My Life

1.

2.

3.

Financial life planning goals focus on the “big picture” and provide a deeper meaning to the tax and financial planning process. Focusing on improving your life as it relates to money is the real challenge that you should be called to achieve. This means finding ways to understand how smart money related decisions will have an impact on your life plan. As this exercise should have demonstrated, smart decisions regarding money matters are guided by the establishment of "SMART" goals.

Financial life planning requires a focus on what matters to you the most in life. It starts the thinking process about what is important to you about money. When establishing tax and financial goals you should consider the role that money plays in your life. That is the "smart" way to approach the financial planning process.

Tax Resolution: Identifying the Need for Change

The tax resolution industry is highly fragmented with the largest tax resolution firm commanding less than 1% of the industry share. Unfortunately, tax resolution firms are unregulated and many of the largest firms do not have stellar track records of service and performance. Recently I surveyed some of the marketing slogans of tax resolution firms advertising on television and the internet. Most of the messages these companies use to reach new clients convey offers of hope and encouragement. However, some companies are marred with extensive customer service complaints and broken promises. Others flat out mislead their clients, misrepresent their services, or market “pennies on the dollar” and “one time only- act now!” settlements. Here are some marketing slogans that I came across recently:

“You could reduce your IRS tax debt to a fraction and be tax debt free”
“Settle for pennies on the dollar- Ex IRS Agents”
“End your IRS Fears”
“Get the IRS off your back”
“Do not be another IRS victim”
“IRS tax problems ruining your life?”

What do all of these statements have in common? They are attempting to reach at the most common emotions shared by a significant number of taxpayers that owe the IRS: FEAR and DESPARATION. The one thing that is missing sometimes is a message that promotes empowerment and accountability while offering the professional expertise that is often needed to help resolve tax problems. It is true that the financial stresses of debt can be overwhelming and debilitating. The IRS and collection agencies can make even the strongest willed person feel powerless and overmatched. Unfortunately, many desperate people make a huge financial mistake when they let fear guide their decision regarding where to seek tax assistance.

Tax representation firms understand the underlying fear and procrastination that is associated with the typical tax resolution client. Emotions and psychological factors play a key role in the tax resolution process. Tax representation firms also understand that some people with tax problems do not usually possess a high degree of financial literacy. That is why the typical American with tax problems is at risk of being taken advantage of when dealing with the IRS.

The following are some of the most common mistakes that people make when seeking to resolve tax problems with a tax resolution or tax representation firm:

* Focusing solely on getting rid of tax debt rather than on changing the underlying financial behaviors that helped create the tax problem.

* Financing the cost of tax representation services only to dig deeper in debt.

* Allowing their fears and doubts to increase the chances they will make an emotional decision with respect to choosing a tax representation firm.

* Failing to realize that an Offer in Compromise (resolving tax debt for less than the amount owed) is not for everyone.

* Falling for the lure of a commissioned sales agent providing empty promises they will qualify for an Offer in Compromise when more realistic alternatives exist.

* Hearing what they want to hear (“you can get out of tax debt”) rather than what they need to hear (“you can take control of your tax and financial situation”).

* Settling for high interest IRS payment plans when other resources are available to pay off the tax debt faster and with lower interest and penalties.

* Getting taken advantage of by not taking the time to do their homework with respect to seeking professional tax resolution guidance.

* Assuming that their tax professional will do all the work and neglecting to send in relevant documents and paperwork needed to proceed with their case.

* Trying to resolve tax problems without a plan.

Rather than simply offering promises of hope and resolution, I prefer to be upfront with my tax resolution clients and let them know that dealing with tax problems is part of a bigger financial process of change. This process may require a great deal of work on their behalf to implement the tax and financial planning recommendations. The end result of the hard work is a genuine sense of financial freedom and is definitely worth the effort. If you or someone you care about has a tax problem, always remember that the ideal solution starts with a personalized tax and financial plan.

Protecting Your Investment Assets From Future Tax Rate Hikes

With the potential for significant tax law changes looming on the horizon strategic planning becomes necessary now more than ever to help preserve and build wealth. From a historical perspective, Americans are currently enjoying favorably low income tax rates. Unfortunately for affluent individuals and families this is soon likely to change. With massive government spending and growing federal deficits it is becoming apparent that changes to the tax code are inevitable and significant tax hikes will likely occur in the not too distant future. So, beyond participating in tax deferred retirement accounts (401k, 403b, IRA, Roth IRA, etc.) what can investors do to protect their current and future assets from these expected tax rate increases?

There are a number of different tax strategies available to consider in advance of these expected tax increases. However, one thing to keep in mind is that tax considerations should never be the sole basis for a planning strategy. Income tax planning is just one part of a comprehensive financial plan. Consider the following strategies as you adapt your financial life plan to the possibility of higher taxes.

Establish a comprehensive plan
The best starting point in preparation of future tax increases is to have a plan in place prior to tax law changes. One of the biggest mistakes that many investors are making today is taking a "wait and see" approach and not being proactive. Comprehensive planning strategies help prepare for life's uncertainties and add meaning and purpose to important decisions related to taxes and other money matters. If you are investing for future life goals and objectives, be sure that you have a written set of guidelines to help you track investment decisions. An investment policy statement should be used to help monitor investments and take into account all potential tax implications.

Shifting income
While there is no guarantee that we will see an increase in tax rates during 2010, it does not hurt to be prepared. In some cases it may make good sense to receive ordinary income in 2009 rather than in 2010 when tax rates may be higher. The highest marginal income tax rate is currently 35%. If you have non-qualified stock options you should consider exercising the options in 2009 if you anticipate moving into a higher tax bracket the following year. Small business owners and investors who have control over when income is received should also consider receiving ordinary income in 2009 rather than in a later year when rates may increase.

Capital gains
If the tax cuts that were initiated during the Bush Administration are allowed to expire, the highest capital gains rate will move from 15% to 20%. If you have investments that have increased in value over the past few years you could consider taking capital gains in 2009 while rates are at their lowest levels. Of course this should only be done if it makes sense from a strategic asset allocation perspective and you were planning on selling within the next 3-5 years anyway.

Tax efficient mutual funds and ETFs
Some mutual funds do a better job than others with tax efficiency. As income tax rates rise, the importance of monitoring the tax efficiency of investments held in taxable accounts becomes essential. As an investor, it is necessary to find money managers who are capable of balancing investment returns with tax considerations. Keep in mind that after-tax investment returns should be taken into account. Do not simply focus on pre-tax investment returns.

Index mutual funds and exchange traded funds (ETFs) are excellent investment vehicles from a tax efficiency standpoint. Traditional index funds and ETFs are, by nature, tax efficient — and cheap. The mutual fund industry also has a wide selection of tax-managed offerings that focus on minimizing taxation. The bottom line is as tax rates go up, the need to focus on tax efficient returns increases for investments held outside tax advantaged accounts such as IRAs or 401ks.

Variable Annuities
Although variable annuities are not my favorite investment vehicles due to cost and other factors, they do have a place in some financial planning situations. Annuities allow investors the opportunity for tax deferred growth and investment gains are not taxed until they are withdrawn. Upon withdrawal variable annuity income is taxed at ordinary rates (penalties may apply to withdrawals prior to age 59 1/2). The tax deferral of annuities becomes more appealing in a rising interest rate environment. If you are considering variable annuities, focus your search on low cost options available through a Fee Only financial planner.

Municipal Bonds
Municipal bonds are another investment vehicle that becomes increasingly appealing for taxable brokerage accounts as tax rates increase. This is due to the increase in the taxable equivalent yield of municipal bonds. Municipal bonds and municipal bond funds provide federally tax-exempt interest. In some cases state and local taxes may also be tax-exempt. If you are reviewing alternatives for the fixed income portion of an asset allocation plan, be sure to consider municipal bonds for your brokerage account.

The taxable equivalent yield calculation is as follows:

Tax-Equivalent Yield = Tax-Free Interest Rate ÷ (1 – tax rate)
So, if the municipal bonds interest rate is 3% and the highest tax rate increases to 40% the tax equivalent yield is 5% (3 divided by .60 equals 5%).

Buy and hold, but do not forget
I have never been a strong advocate of active trading. Active trading adds additional costs and historically underperforms passive investment approaches. The most important determinant of investment performance over time is asset allocation. While investors cannot control the movements of securities markets, they can control costs. As capital gains rates increase, the tax deferral strategies when using a buy and hold approach provide a valuable element of defense. If you have a long-term time horizon for investments, you will likely see a variety of tax law changes during the lifetime of your investment holdings. Buy and hold strategies help defer capital gains taxes until the actual sale.

In summary, aside from Roth IRA's, 401k's, and other tax deferred retirement accounts there are other options investors must be aware of to protect themselves from an increase in tax rates. As the old saying goes, the only constant in life is change. Tax laws in America are about to do just that- change. We don't know exactly when or how much, but tax rate changes are coming. The biggest line of defense is to be proactive and establish a comprehensive financial plan that focuses on investments, taxes, and other aspects of your financial life.

LifeSpan Tax Resolution: Free Book Giveaway

I am pleased to announce that my firm is currently giving away free copies of a book on tax resolution planning. This current promotion is designed to increase the awareness of tax resolution planning. "Tax Resolution and Financial Freedom: Using the Financial Planning Process to Resolve IRS Tax Problems" (ISBN- 9780578014777, $24.95) was released in March 2009. The purpose of "Tax Resolution and Financial Freedom" is to help individuals and small business owners make the smartest decisions possible when trying to deal with IRS tax problems. Free copies of the print version of Tax Resolution and Financial Freedom will be distributed to the first 25 people that sign up for a complimentary Tax Resolution Analysis. A limited number of copies are also available to tax professionals seeking to incorporate basic financial planning techniques with the tax resolution process.

Tax debt problems are a growing concern for millions of Americans. Recently the tax gap in the United States was estimated at $290 billion. The Internal Revenue Service announced in January that they are willing to work with taxpayers experiencing difficulty meeting their tax obligations. However, with the recent levels of government spending and the growing need to close the tax gap IRS collection efforts are likely to increase for taxpayers that ignore previous collection efforts. Many different solutions exist for taxpayers having difficulty resolving their tax problems. The LifeSpan Process of Tax Resolution and Financial Freedom was designed to help people choose the most cost effective solution to their problems related to money and taxes. Most importantly, a tax resolution plan follows basic principles of the financial planning process. Many tax resolution efforts fail over the long haul because they only treat the symptoms of tax debt rather than the underlying problem- lack of a genuine tax and financial plan.

LifeSpan Financial Planning, LLC currently provides a free Tax Resolution Analysis for our prospective clients. The confidential analysis generally lasts 30-45 minutes and is completed by phone, in-person meetings, or via secure video conferencing. This brief analysis is designed to provide a basic action plan to help people take the steps necessary to resolve tax debt problems using a tax resolution plan. LifeSpan encourages people with tax problems to look at all of their options and always do their research when choosing whether or not tax representation is necessary.

The Tax Resolution Analysis is a no-blame, no shame, no obligation opportunity to take the first steps toward financial freedom. Relatively few financial planners specialize in tax resolution planning. I think it is essential for people with tax debt to receive objective, unbiased guidance as they try to get their financial lives back on track. As a Fee Only financial planner, my firm is obligated to uphold the fiduciary responsibility to our clients. In general, this means that we will always act in the best interests of the client as they work to resolve tax debt related issues.

To reserve a free copy of Tax Resolution and Financial Freedom contact me toll-free at 877-TAX-9110 or send an email to scott@lifespanplanning.com with the subject line BOOK OFFER.

Money and Relationships

One common problem in marriages is a disagreement on how to manage money. Unfortunately, comments such as “you spent how much on that?” are more common than the ultimate question- “how much should we be spending?” It is not surprising that financial disagreements are often cited as the number one reason couples end up getting divorced. Many couples struggle with the task of openly discussing their finances. The tax and financial planning process requires couples to work together to achieve a common goal of financial freedom. This means that both parties need to take action and make the commitment to change financial behaviors.

Money and taxes should not be viewed as an issue of mine and yours. As a couple you should view everything as an “ours” issue. Talking about money with anyone can be very difficult because money is such a taboo subject in American culture. When that special someone is your spouse the talk can be even more complicated.

Why does money have such a powerful impact on our relationships? This is a difficult question that I encourage couples to explore. Money represents different things to each partner. One partner may view money as a symbol of power and success. The other may see money as a symbol of comfort and security. If the topic of dealing with tax or financial matters and thus taking control of personal finances makes one or both parties emotionally uncomfortable or defensive, you should seek the help of a financial planner or financial counselor. Professional counseling is also available for couples experiencing problems communicating about money.

Make a commitment to one another to handle your tax or financial problems as a couple. This is especially important if debt or other financial problems were assumed prior to the marriage or a non-liable spouse is involved. Simply determining that your partner’s debt is not your problem is not an effective alternative. Blaming will also do nothing to help the situation. Other unhealthy habits include sabotaging personal spending plans by secret spending or hiding financial decisions from the other spouse.

Each spouse should be accountable to the other. Aim to create a tax and financial plan that works for both of you. Make sure that the commitment to work toward financial freedom is a vision that you both share. If only one person is doing the work then you have a major problem brewing.

Communicating About Money
How we communicate with each another can be just as important as the message you are trying to get across to the other person. If you have a recent history of tax or financial problems it is easy to let emotions and the past take over the discussion. When talking to a spouse or significant other about money it is also easy for things to get lost in translation. Always be aware of how you are actually communicating with a spouse or loved one about money matters. Never forget that how you say things is just as important as what you actually say. Talking about money is not something that comes easily for most people. Try following these basic communication tips when talking about taxes and money matters.

1. Set a date
Schedule a convenient time to talk about money. Try to pick a time during the week when you are both available to have a calm discussion free from any distractions (e.g., no children, no television).

2. Establish open lines of communication
Remember that what you say is sometimes not as important as how you say it. Use “I” messages to improve communication.

3. Talk about your life experience with money
What lessons did you learn early in life about money?

4. Give and Take
If you are going to ask your spouse to sacrifice something you need to be willing to do the same.

5. Set boundaries on what can and cannot be discussed
Stay focused. Do not bring up off-limit topics.

6. Avoid secret-spending
Be open and honest with your spouse.

7. Agree on a personal spending plan
A budget or personal spending plan will not work unless you both work the plan together.

8. Discuss your financial matters on a regular basis
This is a key element to staying focused and on track.

9. Seek professional assistance if necessary
Know when to seek assistance. If you cannot talk to your spouse or significant other about money then you may need help. Marital counselors and financial life planners can both be helpful.

Taking Control of your Income Tax Planning

It is no surprise that most Americans dread April 15th when the deadline looms for filling out federal and state income tax returns. On the surface, learning the tax code can appear more complicated than learning a new language. In fact, sometimes I read the tax code and wonder if the IRS is speaking English.

Have you ever vowed to yourself at tax time that you will be better prepared "next year" only to experience the exact same frustration when next year arrives? It is becoming a popular New Year's resolution for people to promise themselves that they will do a better job at maintaining accurate records and getting organized, or that they will pay closer attention to possible tax-saving measures. Unfortunately, many people simply do not follow through with that commitment.

Engagement in the tax and financial planning process provides taxpayers with an opportunity to take control of their income tax concerns. Instead of being a typical taxpayer and waiting for the deadline to arrive, you should plan ahead and file your tax returns prior to the April 15th deadline. Most importantly, you should file those tax returns with confidence that you are in control of your financial destiny. You may even decide to go ahead and schedule your own deadline of March 15th or April 1st and hold yourself accountable to a self-imposed deadline to defeat the temptations of procrastination. If everything goes smoothly you should celebrate your step toward total tax and financial freedom.

Disclaimer: Please note that the term "tax freedom" does not mean you will likely ever be completely free from paying taxes in this country. However, tax freedom can be achieved by taking control of your tax situation and minimizing the impact of current and future taxes with a plan that works.

Whether or not you choose to use the services of a tax professional is a personal decision and depends on your individual level of confidence with tax and other financial matters. For most taxpayers with a history of recent tax and financial problems I suggest the use of professional tax preparation services for at least a couple of years. At a minimum you should at least use some type of tax preparation software to assist with the process. Turbo Tax, Tax Wise, and Tax Cut are some of the most popular software programs that my clients have used successfully to help prepare tax returns.

Tax planning is more than just trying to reduce your overall taxes. Income tax planning decisions should always be part of your overall financial life plan. Always coordinate tax planning with your comprehensive financial planning goals and objectives. If you are working with a CPA, EA, or other tax professional be sure that they are communicating with your financial planner or other financial advisory team members.

Holistic tax planning requires a deeper focus than just trying to lower taxes. Tax reduction is great. However, it is more meaningful when used in conjunction with bigger picture planning. If you have not done so already this year, take a few moments to review your income tax plan. Don't have a formal tax plan in place? It is not too late to start. Next tax season is not too far away and will be a lot more enjoyable for the taxpayers that take the time to prepare for April 15th throughout the course of the year.

Tax Resolution: Embracing the Need for Change

As people with tax or other financial problems embark on their tax and financial planning missions they need to embrace the idea of change. Dealing with tax problems can be a significant challenge. Tax resolution planning requires you to take a different approach to managing taxes and personal finances. The tax resolution process may be difficult and frustrating at times and you should always prepare for and expect minor setbacks. If you take the steps one at a time and prepare to take control of your life as it relates to money you will be able to obtain meaningful change.

Taking Action: Elements of Change
1. Readiness to change
2. Barriers to change
3. Expect setbacks

The concept of tax resolution planning involves taking action. If you want to change your financial life and get out of tax debt you have to take action. You have to want to change and be ready to accept it with courage and a positive attitude. Improving your financial well being requires a constant pursuit of meaningful change in all aspects of your life.

Many barriers to change exist along life’s journey no matter what the challenge. In the tax and financial planning world these barriers could be procrastination and fear. Other obstacles such as lack of support or marital discord may also stand in the way of change. Whatever your personal barriers are you need to go ahead and accept the fact that there will be obstacles. You should expect to incur setbacks and prepare for them. This does not mean that you should accept failure. You simply need to prepare for the minor setbacks and never allow them to stop you on the journey to financial freedom.


Assessing the Change Process
Behavior change is an ongoing process and in theory progresses through a series of stages. These theoretical stages were introduced by James Prochaska, Ph.D. and are generally referred to as the Transtheoretical Model of Change (Stages of Change Theory). I know that is a big word. Do not focus on it as much as the importance of assessing where you are in the change process while seeking ways to resolve tax problems. As you progress through the Tax Resolution Steps (and then focus on the Steps to Financial Freedom) always keep in mind as to which stage you are in.

1. Pre-contemplation- person does not intend to take action in the next six months

Example: IRS letters are completely ignored, unwilling to discuss the need to file past due tax returns, continue to spend more than you earn, no personal spending plan, may not even realize a tax problem exists

2. Contemplation- person intends to take action in the next six months

Example: Realizes the need to deal with tax issue, understands the need for a tax and financial plan, lack of awareness where to turn to for help and guidance, do not understand the financial mess they are in, tried to create a budget in the past but failed, defensive (pulled into action before they were ready)

3. Preparation- person intends to take action in the next 30 days

Example: Researching available tax resolution options, deciding whether or not to seek professional help, beginning stages of organization, gathering tax and financial documents

4. Action- person has taken action, but for less than six months, hardest most demanding step, make a commitment to place the tax resolution and financial planning process as the top priority for the next six months,

Example: Seeking help with tax resolution issues, creating a personal spending plan, determining the best particular tax resolution alternative, working the steps of tax resolution and financial freedom

5. Maintenance- person has take action for more than six months, stress is the top reason people regress at this stage, there is a need to create positive choices or alternatives to deal with stress (social support/talking, exercise, relaxation, following a financial "life plan")

Example: Staying current with IRS payments, filing future tax returns on time, reviewing personal spending plan on an ongoing basis, communicating regularly with spouse about money

6. Termination- person will not revert to self-defeating, self-destructive financial behaviors; learning new behaviors and making them a part of who you are, similar to the challenge that people are faced with addiction

Example: Tax freedom is achieved by paying off the tax liabilities. Future tax and financial problems are avoided by consistently using positive financial behaviors. Developed the ability to take control of money and focus on other parts of life.

The LifeSpan Process of Tax Resolution and Financial Freedom promotes the termination of problematic financial behaviors. The best way to do this is to learn better alternatives such as planning, eliminating debt, avoiding debt, saving and investing. This process of change eliminates debt faster and reduces the likelihood of future tax or financial struggles.

LifeSpan Financial Planning Joins National Association of Personal Financial Advisors

I am pleased to announce that my firm and I have been accepted for membership into the National Association of Personal Financial Advisors (NAPFA). NAPFA is the nation's leading professional organization dedicated to the advancement of Fee-Only comprehensive financial planners. Financial advisors admitted into the organization meet the highest standards for professional competency, comprehensive financial planning and Fee-Only compensation. The criteria to join NAPFA include sufficient professional experience, submission of a comprehensive financial plan approved by members of NAPFA and rigorous training for the new member. As a member of NAPFA, I will have access to ongoing educational opportunities, advanced national conferences and NAPFA's superior learning center. For more information on NAPFA, visit www.napfa.org.

LifeSpan Financial Planning, LLC is a Fee-Only tax and financial planning firm located in Mount Pleasant, South Carolina. For more information on the Fee-Only tax and financial planning services provided by LifeSpan visit www.lifespanplanning.com or call 877-829-9110.

Do's and Don'ts of Tax Resolution and Financial Freedom

It is no secret that money plays an integral role in our lives. Think about the things that you do on a daily basis. Money is right there whether we see it or not. Everyone has their own belief systems related to money. In fact, we all begin creating the framework for how we view money early on in life. It is difficult to see beyond the here and now during any stressful life event. Dealing with tax or other financial problems can definitely be classified as a challenging life event that has an impact on all aspects of the life experience.

How people with tax and financial problems choose to respond to a particular financial challenge will have long-lasting implications. Similarly, the approach that tax and financial planning professionals use when dealing with their clients’ problems will also go a long way in preparing others for tax and financial freedom.

The goals of tax resolution and financial planning are quite simple. Replace the old way of dealing with money and taxes with a proven system that will help you achieve financial freedom.

STOP

Engaging in negative financial behaviors
Living paycheck to paycheck
Procrastinating and living in fear
Going deeper and deeper into debt
Worrying about your money
Putting off retirement and other life goals
Being intimidated by the IRS
Allowing interest and penalties on tax debt to grow
Trying to figure out where your $$$ went at the end of the month
Overdrafting your accounts or getting late fees
Arguing with your spouse about money

START

Planning your future and enjoying life now
Making smart decisions about your money
Taking action and eliminating negative financial behaviors
Paying cash for purchases
Living on less than you earn
Getting out of debt
Investing for retirement and other goals
Dealing with the IRS with confidence
Resolving your tax debt in the most cost-effective manner
Telling your $$$ where to go at the start of the month
Making your money work for you rather than working for it!
Working with your spouse and communicate more effectively

Tips to Stay Current with Estimated Tax Payments

Estimated tax payments are required on income that is not subject to withholding. The most common types of income that results in estimated tax are earnings from self-employment, interest, dividends, alimony, and rental income. Here are some basic tips related to estimated tax obligations.

Calculate your estimated tax payments
Many taxpayers have difficulty predicting what their actual income from self-employment and other sources (rental properties, investments, etc.) will be from year to year. Form 1040-ES is the form that is used to calculate required estimated tax payments. Use this form to calculate estimated taxes. Unless you anticipate significant changes in income, it is generally a good idea to make estimated tax payments based on 100% of the previous year’s tax liability. By choosing this option you will simply divide the total amount of tax you paid in 2008 by 4. There is an exception to this rule if your 2008 income was $150,000 or greater. Rather than being able to base estimated payments on 100% of last year’s total tax, higher income taxpayers are required to base payments upon 110% of last year’s total tax.

Review your income tax plan regularly
Staying current with estimated tax payments requires a plan. Review your actual income and tax payments on a regular basis if you are subject to estimated taxes. This is especially important if you anticipate significant fluctuations in your income. A little planning can avoid significant headaches and surprises when the next tax filing deadline arrives. In my professional experience I have seen many tax problems arise as a result of the lack of planning.

Avoid estimated tax penalties
A penalty may be applied if you do not pay enough estimated tax for the year. Estimated tax penalties may also apply if you do not make payments on time or in the correct amount. The Internal Revenue Service recently announced that interest rates for the calendar quarter beginning July 1, 2009, would remain the same. The rate for underpayment of taxes is currently 4 percent. The best way to avoid estimated tax penalties is to consistently track income and tax payments throughout the year. While this rate is currently rather low, any penalties that can be avoided will put more money in your pocket and eliminate unnecessary penalty payments to the IRS.

Plan ahead for events that may result in an estimated tax
Be prepared if you have an unexpected event occur (e.g., loss of job, divorce, early retirement, family emergency, major purchase) that requires a taxable distribution from a retirement plan or other investments that are subject to taxes. Taxpayers are frequently overwhelmed with dual focus on meeting cash flow needs and satisfying tax obligations. During uncertain economic times or when faced with a cash flow crisis, it can be very tempting to ignore basic tax obligations. Proper income tax planning can help prevent problems during both good times and bad financial times. Any potential tax event should be discussed with your tax advisor or financial planner.

Stay current with your payments
Estimated taxes are due by the 15th of April, June, September, and January. It is important to keep in mind that these are not exactly “quarterly payments”.
If needed, try making weekly, bi-weekly, or monthly payments. This will reduce the impact of the sticker shock related to quarterly payments throughout the year. A significant amount of discipline is required to make sure that funds set aside for estimated tax payments are actually available when needed. If you are routinely struggling to identify funds for estimated tax payments you should strongly consider establishing a separate bank account (e.g., checking, savings, money market) specifically for estimated taxes. Never commingle funds designated for taxes with monies that are being used to meet basic living expenses.

Use the Electronic Federal Tax Payment System
Paying taxes electronically can eliminate the need to write checks and streamline the process of paying estimated taxes. Using the EFTPS system is the easiest way to pay federal taxes for individuals as well as businesses. Taxpayers have the ability to make all federal tax payments including federal tax deposits, installment agreement and estimated tax payments using Electronic Federal Tax Payment System (EFTPS).

The Basics of Estimated Taxes

If you are self-employed you are responsible for paying the self-employment tax. Any individual who is self-employed, retired, laid-off, or disabled, is responsible for filing and paying Federal estimated quarterly taxes and in states having a state income tax, for filing and paying State estimated quarterly taxes. This can be very different from the taxation that takes place while you are employed.

First of all, the term “estimated quarterly taxes” is not exactly accurate. The IRS publishes a schedule that jumps around a little. The first payment for a tax year is due April 15. The second payment is due June 15, and the third payment is due September 15. The last payment is due January 15 of the next year. So the payment schedule is more like 3½ months, 2 months, 3 months and 4 months in making up the Federal estimated quarterly tax payments. The intent, however, is each payment represents ¼ of what you will owe for the year.

It takes discipline to plan and set aside funds for tax payments throughout the year, especially when the individual or married couple is managing their own income. If sufficient funds are not set aside as income is earned, then the individual or married couple will be put in a situation where some assets might have to be liquidated in order to come up with enough money to pay the taxes. An easier method is for the individual or married couple to know what their approximate Federal and State tax rates are and to apply those rates to income as it is earned. The calculated taxes should be set-aside in a separate interest bearing account until it is time to pay the estimated tax payments.

The IRS allows for two basic methods of calculating estimated taxes. An individual or married couple (if filing jointly) can either elect to pay an amount based on the total taxes paid in the previous year or pay at least 90% of the estimated taxes that will be due in the current year. Remember, in either situation, the amounts paid are only for estimated taxes and the actual tax due will probably differ from the total of estimated taxes actually paid. If electing to pay based on the prior year, the IRS allows you to calculate your amount and to then spread that amount into four equal payments, paying them on the estimated tax due dates.

Example: A married couple filed a joint return and the previous year’s total income was $160,000. The IRS formula is 100% of the prior year income if the income is less than $150,000 or 110% if greater than $150,000. If the couple paid Federal taxes of $42,000 last year on income of $160,000, this year’s estimated taxes would be $42,000 X 1.10 = $46,200. The estimated quarterly tax payments would be $11,550 due on each estimated tax installment date.

If you to pay at least 90% of the estimated tax due during the current year, then you must keep track of income received during the year and make sure the total estimated taxes paid by the time the last installment is paid equals 90% of the actual tax that will be due at filing time. (This should be easy to do, even if the first three installments were insufficient, as the last installment date is January of the next calendar year. This allows you to adjust the last payment for any unexpected income.) Failure to pay at least 90% of the tax due will result in a penalty being assessed on the amounts failing to meet the 90% level. Keep in mind, the 90% option is just that, 90% of the actual tax that will be due by the April 15th filing date. If you just meet the 90% amount, then the remaining 10% due will have to be paid with the final filing.

One surprise people discover when electing the 90% option is that the date of the first payment due in the next year and the annual filing from the last year coincide. Thus, not only is the estimated quarterly payment due for the current year, but any remaining balance owed from the prior year, such as the 10% not paid due to electing the 90% rule, will be due with the year end filing for the prior year. If funds were not set aside coming up with the monies to pay these taxes can be challenging. Keep in mind, these rules apply to both Federal and State taxes if your state has an income tax.

Do you Owe Estimated Taxes?

It is often emphasized by financial planners that tax planning is a year round effort. For most people the April 15th filing deadline is at the center of their tax planning concerns. However, most financial planners and tax professionals agree that tax planning begins well before the due date of a personal income tax return. The implementation of an effective tax and financial plan throughout the course of the year can help one minimize the impact of taxes and make smart financial decisions. If you owe estimated taxes to the IRS the importance of having an income tax plan in place is magnified.

Do you owe the IRS or State estimated taxes?

Estimated tax is the method used to pay tax on income that is not subject to withholding. The most common examples of income resulting in estimated taxes includes self-employment income, investment income (dividends and interest), alimony, rental income, gains from the sale of assets, prizes and awards. If the amount of income tax being withheld from your salary, pension, or other income is not enough you also may have to pay estimated tax.

Who Must Pay Estimated Tax
If you had a tax liability for 2008, you may have to pay estimated tax for 2009.

General Rule
You must pay estimated tax for 2009 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2009 after subtracting your withholding and credits.
2. You expect your withholding and credits to be less than the smaller of;
- 90% of the tax to be shown on your 2009 tax return, or
- 100% of the tax shown on your 2008 tax return. Your 2008 tax return must cover all 12 months.

Many taxpayers get into trouble with tax debt due to the failure to stay current with their estimated tax payments. Some of the most common triggers of tax problems are related to major life events. These life changes may include loss of employment, business cash flow problems, and unexpected medical expenses (to name a few). Self-employed individuals are at a huge risk for estimated tax problems. I see a great deal of people who are transitioning from being a W-2 employee to self-employment struggle with making estimated tax payments. Keep in mind that the ultimate trigger of tax problems is often the lack of a holistic tax and financial plan.

The failure to make accurate and timely estimated tax payments can lead to major tax problems. If you are required to make estimated tax payments you need to follow a tax and financial plan that will prepare you for this tax obligation. Good organizational skills and budgeting is an excellent form of prevention.

Next week I will present some basic tips to help taxpayers subject to estimated tax payments stay current with their tax obligations and prevent tax problems.

Common Traits of Millionaires and Financially Successful Individuals (Part III)

Financial freedom requires a solid understanding of your core values and beliefs. In previous blog entries various traits and characteristics of financially independent people were identified. The most common qualities of millionaires and financially successful people were identified as follows:

1) Integrity, 2) Courage, 3) Willingness to Act, 4) Commitment, 5) Purpose, 6) Creativity, 7) Balance, and 8) Persistence.

Incorporate all of these characteristics and personality traits into your life and you will likely gain a better understanding of what the term "financial freedom" actually means to you. The only constant in life is change. If you are going to change your financial life then you need to adopt the behaviors associated with these characteristics of success.

9. Spirituality

“We need to find God, and he cannot be found in noise and restlessness. God is the friend of silence. See how nature - trees, flowers, grass- grows in silence; see the stars, the moon and the sun, how they move in silence... We need silence to be able to touch souls.” - Mother Teresa

“Faith is the force of life.” Leo Nikolaevich Tolstoy

Successful people have a strong amount of spirituality in their lives. A strong relationship with their God helps guide them through good and bad times. Spirituality also provides an understanding that our actions and behaviors have a greater meaning and purpose in the grand scheme of things. Faith also provides encouragement and strength during difficult times such as experiencing tax and financial problems.

The Bible teaches us many valuable lessons about money. Some people mistakenly believe that money is the root of all evil. The scripture tells us that the love of money is the real problem. A life of faith helps people accept the role as an agent of change.

10. Love of Learning

“Man's mind, once stretched by a new idea, never regains its original dimensions.” - Oliver Wendell Holmes

“Learning is like rowing upstream: not to advance is to drop back.” - Chinese Proverb

Successful people never lose the desire to learn. Whether through reading, attending classes, learning new hobbies or exposure to new life experiences, knowledge is a key to success. The love of learning inspires successful people to be open minded and willing to advance their minds. Every person that you meet and every life event provides an opportunity to learn something.

11. Adaptable/Flexible Thinkers

“If you are truly flexible and go until... there is really very little you can't accomplish in your lifetime.” - Anthony Robbins

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” - Charles Darwin

Adaptability and flexible thinking is a vital trait of successful people. Success demands thinking outside the box. Adaptable and flexible thinkers see both positive and negatives in every situation. They also possess the ability to adapt their style of thinking in different situations. Open-mindedness and curiosity are excellent traits to possess when faced with difficult problems.

12. Patience

“Patience is waiting. Not passively waiting. That is laziness. But to keep going when the going is hard and slow - that is patience.” – Unknown

“He that can have patience, can have what he will.” - Benjamin Franklin

Success takes time to build. You cannot begin building meaningful wealth until you are completely out of debt and have established a solid financial base (e.g., emergency fund). In this day and age of instant gratification very few people have the patience needed to succeed financially.

Financial change requires a great deal of patience. Tax and financial planning issues do not usually occur overnight. Therefore, they probably cannot be dealt with in a short amount of time. You probably have heard the old saying that anything worth having in this world takes time to get. Patience does not mean sitting around and waiting. As the quote above indicates, you need to keep going and take action even when the going is hard and slow.

Common Traits of Millionaires and Financially Successful Individuals (Part II)

Previously this blog explored some common characteristics of financially successful individuals. The first three traits that were discussed included 1) integrity, 2) courage, and 3) willingness to act. Every financial life plan needs vision and guidance to help people make smart decisions regarding money matters. Successful plans also need models of success to help provide an idea of what a financially free life actually means. Below are some additional characteristics that I believe are important traits to possess during the journey to tax and financial freedom.

4. Commitment

“There is a difference between interest and commitment. When you are interested in doing something, you do it only when circumstance permits. When you are committed to something, you accept no excuses, only results.” Author Unknown

“The best way out is always through.” - Robert Frost

Commitment provides the necessary energy and dedication to keep moving forward. Committed people do more than just have the willingness to take action. They keep taking action over and over again.

Creating a plan alone will not automatically fix your tax and financial problems. Tax resolution generally takes a great deal of commitment. As the old saying goes, anything worth having in life does not come easily. Financial freedom is worth the hard work and effort. Freedom to live a financially secure life awaits those who are committed to doing everything it takes to succeed.

5. Purpose

“The purpose of life is a life of purpose.” - Robert Byrne

“Many people have a wrong idea of what constitutes true happiness. It is not attained through self-gratification, but through fidelity to a worthy purpose.” - Helen Keller

Living a meaningful life starts with a sense of purpose. Successful and happy people have usually spent time considering their unique purpose in life and have taken steps to fulfill that purpose. Successful people know exactly where they are going and why they want to get there. They have a clear personal vision to guide them in their personal lives, their family lives, and their careers. Purpose provides the energy and focus to help us achieve life planning goals.

6. Creativity

“The creative is the place where no one else has ever been. You have to leave the city of your comfort and go into the wilderness of your intuition. What you'll discover will be wonderful. What you'll discover is yourself.” - Alan Alda

“The world is but a canvas to the imagination.” - Henry David Thoreau

We all have an innate sense to create in our lives. Successful people have learned to tap into their creative spark and do so in a way that enriches their lives and the world around them. They are constantly questioning the crowd and traditional expectations. They create their own unique definitions of success and rarely subject themselves to a herd mentality. For many this could include doing things differently from a financial perspective. Saving for emergencies rather than spending to keep up with others takes some imagination. Creative budgeting and finding ways to entertain on a limited budget are other examples of financial creativity.

Other creative endeavors help successful people charge their cognitive batteries and inspire goal driven accomplishments. Creativity requires independent thinking. It also helps us tap into our ability to understand the difference between needs and desires through independent thinking and self-awareness. A creative mind helps prevent us from getting stuck in life. It helps us move forward and find new meaning and importance in our daily struggles.

7. Balance

“The best and safest thing is to keep a balance in your life, acknowledge the great powers around us and in us. If you can do that, and live that way, you are really a wise man.” - Euripides

The happiest and most successful people usually lead well-balanced lives. They take time for their families and fun times and celebrate the whole of their lives, not just parts of it. A holistic approach to tax and financial planning works because, without balance life can seem empty and unrewarding. The most successful people in this world are well rounded people that find happiness and joy in various aspects of their life experiences.

It is no small coincidence that the seventh trait of successful people is balance. This fits perfectly with the Seven Goal Areas of Life Planning. The elimination of debt and creation of wealth is a meaningless endeavor if you lack balance in your life. Strive for balance in your life as you continue on the path to financial freedom. Focus on other goal areas such as family, physical health, spiritual, career, social, and intellectual pursuits.

8. Persistence

“Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all.” - Dale Carnegie
“When you come to the end of your rope, tie a knot and hang on.” - Franklin D. Roosevelt

Be persistent in the right areas. Financial planning behaviors must occur on a regular basis for them to become habits. Perseverance leads to prosperity. Never give up on your quest for tax and financial freedom. Most people with significant debt succumb to the urge to give up before they really even start the debt resolution process. Make a commitment to yourself and your family to be persistent with your financial life plan and always stay focused on your long-term goals no matter how hard the journey may be.

Money and Tax Matters on the Radio

LifeSpan Financial Planning will be represented again on the airwaves as I make another guest appearance on the Money Matters Radio Show this Saturday morning at 9:00. Money Matters is hosted by Rick Durkee and airs in the Charleston, SC market on 94.3 WSC FM. The program also streams online via http://www.wscfm.com.

Money Matters typically features a diverse group of tax and financial professionals. The show addresses all aspects of the financial planning process including topics related to tax, retirement, investments, insurance, and estate planning. My appearance will be focusing on the application of basic financial planning principles during the tax resolution process. Listeners will be provided with an opportunity to pick up a free copy of my book Tax Resolution and Financial Freedom.

Scott M. Spann, CFP(R), EA
LifeSpan Financial Planning
(877) 829-9110
scott@lifespanplanning.com

Tax Debt Problems: Finding the Ideal Solution

Do you owe back taxes to the IRS?
Are you behind with filing tax returns?
Is dealing with tax matters becoming frustrating or overwhelming?
Or…
Are you compliant with your tax obligations but would like to establish a plan to minimize the impact of future income taxes?

If you have tax problems, what is the ideal solution for your tax struggles? The answer depends on the “big picture” of your financial situation. There is no one option that is the best choice for each person. A one size fits all approach does not work with tax resolution. The IRS simply wants to ensure that you pay your tax obligation and they will take various measures to make sure you do so according to their terms. It is up to you, the taxpayer (with some professional guidance), to make smart financial decisions when choosing among your tax resolution alternatives. Keep in mind that the IRS is essentially the accounts receivables department of the U.S. Government. Their job is to make sure that everyone that should pay taxes does. If a taxpayer is not compliant with IRS procedures they have the authority to collect.

The Internal Revenue Service does not necessarily care that you choose the best tax resolution option available. They simply want to ensure that you pay your tax obligation and they will take various measures to make sure you do so according to their terms. It is up to you, the taxpayer, to make smart financial decisions when choosing among your tax resolution alternatives.”

The bottom line is that avoidance is not an option. Take control of your tax problems, and while you are doing so assume control of something more important- your total financial situation. There are many options available during your quest to deal with resolving a tax liability. However, taking control of your life by establishing a financial plan is NOT an option…it should be viewed as a requirement if you truly want to reduce your financial stress and get on with your life on your terms (not the IRS’s). Remember, the IRS is interested in one thing during the collections process and that is collecting taxes that are past due.

If you are faced with the task of dealing with a past due tax liability, you need to understand how to organize your financial life in order to deal with the IRS in the most effective manner. This means putting your goals and objectives first and being proactive. Engaging in the financial planning process is your best option as you begin the journey to tax resolution with the IRS. Tax debt inhibits freedom. It distracts you from other more important goals and objectives.

Debt is Dumb. Tax Debt is even Dumber if not dealt with immediately. Resolving tax debt without a plan is not a smart decision. Tax resolution requires a plan. The tax and financial planning process is the solution to resolve tax problems.

Scott M. Spann, CFP(R), EA, MA
Financial Life Planner
LifeSpan Financial Planning, LLC
(877) 829-9110

For more information on the LifeSpan Process of Tax Resolution and Financial Freedom, contact Scott toll-free at 877-TAX-9110. LifeSpan is currently offering complimentary copies of the book "Tax Resolution and Financial Freedom" to everyone that schedules a free Tax Resolution Analysis before July 4th.

Why is the term "Fee Only" so important?

The term "Fee Only" refers to the way financial planners are compensated for the advice they provide. This term is growing in popularity, but many individuals in the financial services industry use this term inappropriately. In addition, if you ask the average person what it means to work with a Fee Only financial planner they may not fully understand the critical importance of the term.

The National Association of Personal Financial Advisors (NAPFA) defines a Fee-Only planner as "one who, in all circumstances, is compensated solely by the client, with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product". This type of professional relationship always places the clients best interests first and eliminates potential conflicts of interest. Fee Only compensation indicates that an advisor never accepts commissions or compensation of any kind related to the products he or she recommends.

I strongly believe that Fee Only planning is extremely important during these uncertain economic times. A financial planner who has a financial stake in the course of action that he or she recommends to a client faces an inherent conflict of interest and cannot be considered objective and unbiased. This is true even if the planner truly believes that he or she has only the best interests of the client at heart.

Unfortunately, the vast majority of financial advisors in the United States are sellers of financial products. There is nothing wrong with the presence of product based advisors. Their services are needed and many do indeed try to do the best for their clients. Some or all of their income may be dependent upon their ability to steer their clients to a limited number of the thousands of financial products available today. Putting aside the conflict-of-interest factor, this limiting of choices, in and of itself, often is enough to impact the quality of the investment advice.

A Fee Only financial planner is well-positioned as an objective source of tax and financial planning advice. I agree with NAPFA's belief "that many of the problems that beset Americans today in their financial affairs – including the mis-management of debt, failure to protect retirement assets and poor allocation of savings and investments – relate directly to the conflicts of interest that pervade the marketplace". If you are in the process of taking control of your financial life, consider working with a Fee Only financial planner to guide you along the journey to tax and financial freedom.

Scott M. Spann, CFP(R), EA, MA
LifeSpan Financial Planning, LLC
877-829-9110

For more information on Fee Only planning visit www.napfa.org or www.focusonfiduciary.com.

The Importance of Eliminating Debt from your Life

The presence of debt problems affects more than just the individual in debt. Tax and consumer debt can create additional strains on relationships with a spouse or other family members. Similar to most problems that go unaddressed over long periods of time, financial problems related to debt will compound if not eventually dealt with. This is undoubtedly the case with past due tax liabilities and related penalties and interest as well as other forms of problematic debt (e.g., credit cards, installment loans, etc.).

Biopsychosocial Impact of Debt (a.k.a. The Triple Whammy)
The presence of debt affects more than just the wallet. Debt problems can also create an increased risk of health, psychological, and social pressures. Engaging oneself in a debt reduction plan will do more than improve the finances. The following problems are associated with debt.

• Health Problems- Being in debt is associated with an increased risk of digestive track issues, migraines, and even heart attack. Other related problems are high blood pressure, insomnia, lower back pain or tension, and concentration problems.
• Psychological Problems- Anxiety, depression
• Social Problems- Marital tension and debt stress have a negative impact on relationships in general, trouble focusing on work can also result in poor productivity and increased problems at your workplace

A life without debt may seem difficult to imagine if you are one of the millions of Americans struggling financially. Debt will not go away on its own. Take action and create a debt management plan that puts you in control of your financial future.

Money Matters Advisory Team

I will be a guest on the Money Matters radio broadcast on Saturday, June 6, 2009. The Money Matters Radio Show is hosted by Rick Durkee. The show airs in the Charleston, South Carolina market on Saturday mornings at 9:00 a.m. until 10:00 a.m. I will also serve as the Certified Financial Planner™ representative on the radio show's advisory team. Money Matters can be heard on 94.3 WSC FM in the South Carolina Lowcountry or on streaming live on the internet at www.wscfm.com. Archived shows are also available.

Be sure to tune in, I will be giving out free copies of my book "Tax Resolution and Financial Freedom" during the first segment of the show!

Scott M. Spann
LifeSpan Financial Planning, LLC

The Need for Emergency Savings

According to the National Foundation for Credit Counseling, one third of all Americans do not have any emergency savings- ZERO SAVINGS. Of those households that do have an emergency fund in place, only 43% have adequate savings available for emergencies. If you genuinely want to reach a state of financial liberation then you need to be different from the average person. As indicated above, the majority of people in this country have no emergency savings. Financial freedom requires being a renegade who approaches money matters in a unique way. Planning for unforeseen events and the unpredictable in life is not unique. However, in this day and age of negative savings rates and growing debt an emergency fund will go a long way in separating you from others who are seemingly content living in a world of debt.

How does the “Tax Gap” affect you?

The IRS and the Economic Policy Institute recently estimated the amount of taxes owed but not paid at $353 billion, equal to about 15% of the total taxes owed. These taxes not paid through our “voluntary and timely” system of taxation are often known as the “tax gap”.

Unpaid taxes mean that the average law abiding citizen is paying more than his or her fair share. If you are one of the millions that are not current with your taxes the tax gap has a different effect on you. The IRS is seeking to increase its collection efforts. Lawmakers will likely increase their pressure on the IRS to decrease the tax gap. Even with recent improvements the IRS is not moving fast enough in the eyes of many to improve the collection of back taxes. While the IRS recently acknowledged the need to be kinder and gentler in light of the recent financial crisis in our nation, they will not be as willing to deal with delinquent taxpayers that avoid collection efforts and ignore existing tax liabilities.

Congress and others are increasing their questioning of the effectiveness of the IRS collection processes. The IRS is currently implementing measures to improve its collection process. Currently, the IRS primarily focuses their collections efforts on a Three Phase Collection Process. Collection notices, phone calls, and in person visits are the three primary elements of the collection process. In 2007 the IRS sent 16 million collection letters to delinquent taxpayers. They answered 5.4 million incoming phone calls and made 1.9 million outgoing phone calls trying to collect on past due tax debt. In person visits are the final part of the IRS collection process. Over 400,000 contacts were made with delinquent taxpayers at their homes and businesses.

The IRS is constantly working to streamline its collection process. There are a number of reasons why IRS collection activities will continue to grow in the coming years:
• The struggling economy, growing national deficit, war on terrorism, and recent financial bailouts have created a situation where the government needs money badly.
• IRS collection efforts are needed and mandated by Congress to help close the tax gap.
• The IRS continues to hire new employees; the majority of these new hires focus on collections and enforcement activities.
• Budget increases are set to be spent on increased collections and enforcement.
• IRS Commissioner has stated that closing the tax gap is his number one priority.

The pressure on delinquent taxpayers will continue to increase as the federal government recently set in motion plans to increase its tax enforcement efforts in the coming years. In addition, new technology and information sharing among tax agencies make it easier for agencies to pinpoint potential offenders, increasing the number of cases for audit and collection. Tax and financial planning professionals are challenged with the task of helping their clients with tax liabilities resolve tax problems in the most cost-effective manner. A comprehensive plan that heavily emphasizes income tax planning can help individuals resolve their tax liabilities and accomplish other financial goals.

Filing Past Due Tax Returns

If you filed your tax returns on time the April 15th filing deadline may seem like a distant memory. However, if you filed an extension or missed the filing deadline, the idea of filing a past due tax return should be fresh in your mind.

If you have tax returns that need to be filed you are not alone. It is not uncommon for some taxpayers to go one or more years without filing a tax return. Many times I have seen that a taxpayer fails to file a tax return in a year when financial and life circumstances changed. For reasons related to procrastination, fear, lack of funds, or any other combination of factors a tax return was not filed. An amazing thing happens at first when a tax return is not filed within the system of voluntary compliance- Nothing! Sometimes weeks, months, and years may pass before the IRS requests a tax return or issues a tax assessment for a previous tax year.

Whatever the reason for not filing, tax problems only get worse if a non-compliant taxpayer starts worrying about his or her financial situation but does nothing to change the problem. Everyone has reasons and a life story that explains why a tax return was not filed. It is important to understand and address your individual reasons to avoid future filing problems. The tax resolution process is focused on the future and moving forward. Try to not dwell on your past mistakes or reasons for not filing a tax return. Focus on taking action and following the tax resolution steps.

Scott Spann
LifeSpan Tax Resolution
(877) TAX-9110

Tax Freedom

According to the Tax Foundation, America celebrated Tax Freedom Day on April 13th this year. This means that the average American will have spent 103 days working to pay their taxes. I find this concept quite interesting because of the great deal of time I spend talking about tax and financial freedom.

Tax Freedom Day is a calculated date based on economic figures and tax burdens throughout the country. For anyone experiencing the stress of dealing with IRS tax obligations or debt problems "tax freedom" may have a different meaning. The real Tax Freedom Day occurs the day an individual decides to take control of their tax situation.

While we cannot eliminate taxes from our lives (at least not anytime in the foreseeable future), we can eliminate some of the stress and anxiety that surround tax matters by following a tax plan that is proactive. Tax freedom is a necessary step on the journey to financial freedom.

Fighting Procrastination

Are procrastinating behaviors holding you back as you attempt to deal with tax and financial matters? You have probably heard the saying, “Why do today what you can put off tomorrow?”. It seems that a significant number of people with tax or financial problems experience a tendency to put off or get overwhelmed by their financial obligations.

Procrastination is defined as putting off things that you should be doing now. Most people procrastinate at some point in their lifetimes. Approximately 20% of people in this country are classified as “chronic procrastinators”. Typical distractions that delay tax and financial planning include family commitments, work, email, cell phones, internet, iPods, and 400 plus channels of digital television with video on demand. Not surprisingly, procrastination is a common characteristic of many tax and financial planning clients.

“To do” lists provide good reminders of what needs to be done. However, a “to do” list is also a good way to delay things actually getting done in a timely manner. Have you ever had good intentions in the past in relation to financial planning tasks? Some common tax and financial intentions are listed in the statements below:

• “I need to file my taxes on time this year.”
• “I really need to set up a savings fund just in case an emergency occurs.”
• “We should pay off our credit cards.”
• “Let’s get our paperwork to our accountant.”
• “I need to get my financial planning forms to my planner.”

Unfortunately, the good intentions listed above lack direction. A better alternative as you follow the steps of the tax resolution process is to develop what I refer to as “implementation intentions” or “planning intentions”. In the tax resolution world, planning intentions decide how, when, and where you are going to accomplish the steps of the tax and financial process. They increase the likelihood you will follow through on the important steps needed to improve your financial well-being.

If you are undergoing the tax resolution process to deal with tax debt you should be sure to define the specifics (how, when, where, etc.) of your planning behaviors. Put your planning actions in writing and hold yourself accountable. Never miss a deadline.

For more information on the LifeSpan Process of Tax Resolution call Scott Spann toll-free at 877-TAX-9110.