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.

Common Reasons for Tax Problems

It is important to understand the reasons for the tax problems and their underlying causes. If you have a tax issue, do not forget the ultimate goals that you have for the Tax Resolution and Financial Freedom process. You should be trying to deal with your tax problems and replacing the problematic financial behaviors with positive ones. This process requires accountability, so be honest with yourself. Now is not the time to dwell on past mistakes. You need to use the knowledge of past mistakes or uncontrollable circumstances as a motivator to guide you along the process of change.

Here is a review of some of the most common events or circumstances that may lead to tax trouble:

· Self-employment- Not understanding the self employment tax or simply neglecting to pay estimated taxes for self-employment income

· Tax protestor

· Failure to pay employment taxes or payroll taxes

· Taxation of Retirement Distributions

· Capital gains reporting related to the sale of stocks, bonds, mutual funds, etc.

· Changes related to an audit

· Insufficient taxes withheld from pay (W-4)

· Loss of job or income reduction

· Cash flow problems related to living beyond your means

· Poor financial management

· Not having enough money set aside for emergencies

· Divorce or other personal problems

· Business failure

· Health problems, medical emergencies; physical and mental problems

A Growing Problem

Tax debt is a financial problem that will only create more trouble if not dealt with quickly and appropriately. More and more people are facing tax liabilities that will have a long-lasting effect on the financial well being and quality of life for people choosing to ignore their tax issues. Tax liabilities do more than create financial stress. Tax problems can affect your emotional and physical well-being. Tax debt also tears apart relationships and marriages. Financial differences are frequently cited as the number one reason that couples get divorced.

If you don't deal with your IRS tax problems in a timely manner, any of the following could occur:

· The IRS can levy (seize) your bank account and take your money out of the bank.

· The IRS can file a notice of levy with your employer to levy your wages, salary, and other income. They can take a substantial amount of your paycheck. This also tells your employer that you have a problem with the IRS. The IRS also enforces collection against your 401(k) and other retirement accounts.

· Penalties and interest will continue to accrue.

· The IRS can levy (seize) your assets and sell them at public auction to satisfy your tax liability.

· With court approval, the IRS can levy (seize) your residence and sell it at public auction to satisfy your tax liability.

· The IRS can issue a summons to third parties such as your bank, credit union, employer, and others to determine assets or property owned by you.

· The IRS can issue a summons to you requiring you to appear, testify or produce books, papers, records, or other data.

· The IRS can file a Notice of Federal Tax Lien, which is public notice of a lien in favor of the United States on all property and rights to property belonging to you.

· Tax related stress may also lead to physical and psychological problems. Financial problems are often cited as the number one reason couples seek a divorce.

Tax problems come in all shapes and sizes. It is important to have a solid understanding of the reasons for tax debt. It is also essential to understand the potential consequences of tax debt. The solution to tax debt is to establish a tax resolution plan.

Scott M. Spann
1-877-TAX-9110
LifeSpan Financial Planning, LLC

IRS Tax Debt Resolution: The Financial Planning Approach

Trying to find the best way to resolve tax problems can be a difficult process. Writing about the best practices to help taxpayers is also a unique challenge. When I started the project of writing a book on tax resolution planning I had a simple goal in mind. I wanted to present an overview of how to use the tax and financial process to deal with tax problems. However, I quickly noticed that very few tax and financial planning professionals actually provide comprehensive financial counseling and planning for a group of people that needs help the most. While exploring this specialized area of tax and financial planning, I have learned a great deal about my own approach to the tax resolution process.

My conclusion is quite simple. The ideal solution to tax and financial problems includes a dual focus on tax resolution and financial planning. Rarely are both disciplines combined in an effective manner. Resolving IRS tax liabilities by using fundamental principles of the financial planning process is the most effective way to deal with tax problems. The use of these same principles is also needed to prevent future IRS tax problems.

One thing that I realized during my research and practical application of this approach is that comprehensive financial planning does work for people with federal and state tax liabilities. However, tax resolution planning is a unique process that needs to be structured in a way that increases the likelihood that someone with significant tax issues related to financial management problems will actually succeed in taking control of their situation.

The LifeSpan Process of Tax Resolution and Financial Freedom combines the fundamental principles of tax and financial planning in a holistic manner that focuses on the psychological and behavioral aspects of managing money and taxes. Simply put, most other approaches to tax problems only deal with the elimination of tax debt rather than the elimination of poor financial decision making. In order to achieve freedom from tax debt you must start with a plan that emphasizes smart financial decisions. When the tax resolution process is performed the right way it always places the focus on “big picture” issues.

Give LifeSpan Financial Planning, LLC a call at 1-877-TAX-9110 if you have any questions regarding tax resolution planning.

Scott M. Spann, CFP, EA
scott@lifespanplanning.com

Common Traits of Millionaires and Financially Secure Individuals

Financial change requires the understanding of past financial behaviors to figure out what needs to be changed. The development of positive financial behaviors will allow change to happen. This new approach to life and financial planning means there is a need to have models of success. It is generally not good to only place the focus on negative financial behaviors. That is the old way of approaching tax and financial matters. Instead let us shift our focus to positive models of success. Based on the work of Thomas Stanley’s "The Millionaire Mind", I have selected a set of positive behavior patterns of wealthy and successful individuals.

An analysis of the personality traits of millionaires and financially successful individuals is more than relevant during the tax and financial planning process. It is required. In order to achieve tax resolution and financial freedom you need to be able to identify some of the most common characteristics of people who have already accomplished success. You also need to strive to possess these qualities.

As you read these traits ask yourself if you possess these qualities. Be honest with yourself as you assess your internal resources. On a personal level I try to ask myself these same questions any time that I am faced with a major life decision.

If there are a few areas that are in need of improvement write them down and make a list of ways that you would like to improve. Keep in mind that you are not expected to currently possess all of these traits. However, the closer that you can get to 100% of these traits the easier your journey may be. Here are three of my favorites that were highlighted in "Tax Resolution and Financial Freedom".

1. Integrity

“Integrity is doing the right thing, even if nobody is watching.” - Author Unknown

Successful people never sacrifice their integrity and are always honest with themselves and others. If you behave with a high degree of personal integrity you have a greater likelihood of financial success. Most importantly, you will live a life of strong resolve and consistency. There are many wealthy individuals in this country who have amassed large sums of wealth through corruption and deception. The acquisition of wealth without integrity is not a sign of success. True financial success requires high standards of integrity through good and bad times.

2. Courage

“Promise me you'll always remember: You're braver than you believe, and stronger than you seem, and smarter than you think.” - A.A. Milne

“Courage is resistance to fear, mastery of fear - not absence of fear” - Mark Twain

Change requires personal sacrifice. To live like nobody else with a sense of financial freedom requires the courage to take risks and live like nobody else until you reach your goals. Often successful people are risk-takers, but more importantly they are courageous. They tap into the courage that lives deep inside them and use it to break ground, try new things and put themselves out in front. When making a commitment to learn new strategies and techniques you are taking risks.
It takes courage to admit failure and pick oneself off the ground and try again at anything in life. Courage is also needed to change one’s approach to taxes and finances. Some of the most successful people in this world have failed time and time again only to get up again and display the courage needed to accept the next challenge in life.

3. Willingness to Act

“Faith means belief in something concerning which doubt is still theoretically possible; and as the test of belief is willingness to act, one may say that faith is the readiness to act in a cause the prosperous issue of which is not certified to us in advance.” - William James

Knowing and doing are two separate things. The key ingredients of tax and financial freedom include three parts behavioral change and one part knowledge and expertise. Knowing what to do during the tax resolution process is important. Having the willingness to act on this knowledge is more important.

Successful people are willing to dig in, do the work and learn new things. They are simply willing to do whatever it takes to create the life they want. TAKING ACTION is a core theme throughout the Tax Resolution and Financial Freedom Process. Be willing to take the steps needed to improve your financial life.

-Scott Spann
LifeSpan Financial Planning, LLC
(843) 469-3505

What is the “LifeSpan Process of Tax Resolution and Financial Freedom”?

I chose the name LifeSpan Financial Planning, LLC for my financial counseling and tax planning practice for a specific reason. An effective financial plan should do more than simply help individuals and families reach their financial goals. In my opinion, the planning process should include a holistic approach that addresses life planning goals as well as concepts of money management. A “LifeSpan Plan” helps define what is important to each unique individual and addresses underlying dreams and visions across the entire lifespan. It also helps individuals and families find ways to maximize the resources available to accomplish these lifelong ambitions. My main goal as a professional has always been to help my clients achieve important life goals and understand the role that money plays in their lives.

Financial planning is both an art and a science. Life planning is a relatively new approach that is usually seen as the art or human side of financial planning. The process of life planning is used to help people discover their deepest and most profound lifelong goals. This can be accomplished through a process of self-awareness and inquiry. If major obstacles such as significant tax debt or poor financial management exist it is difficult to focus on life and financial planning goals.

Tax problems create a need for tax and financial planning strategies that will solve tax issues the best way possible. On the surface it would appear to be a fairly simple approach. This assumption is based on the belief that most people deal with money in a rational way. The reality is that there are many cognitive-behavioral factors that operate as barriers to change in the lives of people with tax problems. These tax liabilities are significant obstacles that delay or prevent people from accomplishing their innermost dreams in life.

Tax Resolution and Financial Freedom is a two-stage process that combines two primary areas of focus: tax resolution and financial planning. Tax Resolution and Financial Planning are typically viewed as separate processes. This system simply does not work due to the sometimes conflicting approaches that do not generally work together. You must start the tax resolution process to be able to progress into comprehensive financial planning. The line between the two stages should be viewed as a barrier that stops people from achieving financial freedom. Tax resolution must be achieved prior to working to accomplish most financial planning goals. Otherwise, you will keep running into the brick wall that blocks the path to financial freedom.

As a whole, the “Tax Resolution and Financial Freedom Process” can be overwhelming and confusing. If you break the process into two parts it becomes a more manageable process. A strong need exists to create a new paradigm for dealing with tax problems. Debt is dumb. Tax debt is dumber. Trying to deal with tax and financial problems without a strategic plan is pure stupidity. Good intentions without direction will most likely lead to eventual failure. This step by step plan has been created to provide the direction needed to address tax problems with a plan.

Psychology of Money

I would like to take a slight detour from the traditional tax and financial planning advice that will generally appear in this blog. I will not deny that the facts, figures, statistics and supporting information related to the various aspects of our financial lives are all quite important. However, one critical area of importance that most financial planners and individuals do not typically address when dealing with tax and money matters is the “psychology of money”.

Is financial planning really all about money? I do not think so. A growing number of financial planning professionals including myself have adopted a holistic approach to the planning process. In general, this means looking at the whole person during the life planning process rather than simply focusing on their financial lives. I strongly believe that the “inner game” of money should not be ignored. It is human nature for our belief systems, attitudes, past experiences, goals and values to have an influence on key financial planning and life decisions. The traditional view towards financial matters is based on rational decision making. In reality, people do not always behave rationally when personal finances are involved.

According to the Certified Financial Planner Board of Standards Inc., more than 40 percent of Americans feel that they are not in control of their finances. Financial planning is about taking control of your finances and is often defined as the process of meeting life goals through proper management of your money. Most of us agree that it is essential to have a plan to guide us through money related decisions. Unfortunately, many people for lack of a better term get “stuck” and never truly start the planning process. That is where principles of cognitive-behavioral psychology relate directly to financial matters.

What is keeping you or someone you know from establishing or implementing a financial plan? Since most everyone will agree that a financial plan is important, the real issue is how to get started. A written plan can provide direction and guidance and reduce or eliminate money-related stress. During these uncertain economic times you can either choose to “panic” or start to “plan”.

Here are some basic tips to get started with the financial planning process if you ever find yourself “stuck”:

1. Do not wait for the right time to establish a plan. It will never happen. Set a specific date and time to review your finances and stick with it. If married, work together with your spouse and communicate openly and honestly.

2. Start with the creation of a Personal Spending Plan (a.k.a. “budget”). Tell your money where to go before the month begins rather than trying to figure out where it all went when the month ends. Use an envelope system to control spending.

3. Next, establish a plan to get out of debt. Avoid high interest consumer debt (e.g., credit cards, installment loans). Pay off your high interest consumer debt before investing.

4. Establish an emergency fund with at least 3-6 months basic living expenses. This should be completed prior to starting any long-term investment plans.

5. Once you have a fully funded emergency savings fund in place you are ready to start building wealth. Try to set aside at least 15-20% of your total income for investments. Tax advantaged retirement accounts should generally be funded first. While you may not be able to invest 15-20% of your income at first you should always use the spending plan process to save and invest as much as possible for your life planning goals.

These tips may sound very simple but they are the most important financial planning concepts to follow if you are just getting started with the planning process. Improving your financial life and using money to help reach important life planning goals is 75% behavioral and 25% knowledge and expertise. Start thinking about the psychology of money and you will be a step closer to meaningful change. The basic financial behaviors of planned spending, debt avoidance, and routine savings are the building blocks for financial freedom.

Scott M. Spann
scott@lifespanplanning.com
(843) 469-3505

Identifying Tax Solutions With A Plan

Do not feel overwhelmed if you owe back taxes to the Internal Revenue Service or a state taxing authority. The $300 billion plus federal tax gap is evidence that millions of people are experiencing tax problems. Do not expect tax problems to go away anytime soon. In 2009 our nation finds itself in the biggest economic crisis in modern history. Financial institutions are failing in record numbers. A credit crunch continues to loom, and the housing market continues to struggle amid global financial concerns. It is only natural that the tax gap will continue to increase as million of taxpayers face unemployment, reductions in pay, and related cash-flow problems. Small business owners and self-employed individuals are also facing increased financial pressures. Do not wait on a federal bailout to get you out of debt. A tax resolution plan should be your own individual bailout plan.

There are a variety of tax resolution options available depending on the individual circumstances surrounding each taxpayer’s financial situation. In addition, there is a growing body of financial professionals (CPA’s, Enrolled Agents, attorneys, etc.) that specialize in helping their clients overcome federal and state tax liabilities. Whatever tax resolution option is right for your financial situation, you must take action in order to obtain a financial solution to tax problems.

The Tax Resolution and Financial Freedom book provides a step by step explanation of how to resolve tax problems and get your financial life organized. Many tax resolution alternatives exist for taxpayers that owe the IRS. The ideal solution varies from person to person. The most common solutions include the following:

· Paying the debt in full using existing resources (selling assets, obtaining low-interest loans, etc.)

· Establishing an Installment Agreement (payment plan) to pay off the debt over time

· Requesting an Offer in Compromise (resolving the tax debt for less than the amount owed)

· Being placed in Currently not Collectible Status (financial hardship cases)

· Filing for Bankruptcy

A tax resolution plan is needed to help make sure that every individual with tax debt chooses the best alternative for his or her unique financial situation. Tax resolution plans use the basic financial planning process to take control of tax and financial problems. The ultimate goal is to achieve tax resolution and financial freedom. In order to identify the best “solution” you need to follow a financial life plan that focuses on tax “resolution”.

10 Common Tax Resolution Myths

If you are seeking professional guidance with a tax resolution issue you should pay attention to these common myths that some tax representation firms perpetuate through various media outlets in the form of television and internet marketing. Always remember there is a large group of ethical tax professionals available to assist people with tax problems. However, it is necessary to separate fact from fiction when determining the best tax resolution plan.

MYTH: The IRS offers a “one time only” opportunity to resolve your tax liabilities.

FACT: The impression that tax resolution is a one shot deal is completely false. This “act now before you lose your chance” approach implies that the Offer in Compromise (OIC) program is a new service with the IRS. OIC’s were initially introduced in the 1990’s in order to increase voluntary tax compliance, reduce taxpayer burden, and improve IRS productivity. The Tax Increase Prevention and Reconciliation Act of 2005 made major changes to the program and altered the rules for lump-sum offers and periodic-payment offers.

These marketing techniques are intended to encourage you to “act now” and sign up for a service. Many tax resolution clients actually become repeat clients and contact the same firm or a different tax resolution company. Is this the client’s fault or a problem with the tax professional? Most typically the client is ultimately responsible for changing negative financial behaviors. However, it is up to the tax professional to provide as much education and guidance as possible to keep clients out of future tax problems. Although tax resolution is not a one-time opportunity, delinquent taxpayers should view it as a one-time only event that needs to be dealt with correctly the first time.

MYTH: If someone owes taxes to the IRS and has negative cash flow they should easily qualify for an Offer in Compromise.

FACT: The IRS has the authority to settle or compromise federal tax liabilities by accepting less than full payment under certain circumstances. OIC’s are generally accepted if the taxpayers can establish that they have either no means of paying the tax or do not actually owe the tax. The IRS calculates a taxpayer’s collection potential by looking at equity in assets and monthly disposable income using a special formula that only includes “allowable” expenses based on national and local standards.

A taxpayer can be living paycheck to paycheck with significant tax and consumer debt and the IRS may still have a legal right to collect on the entire amount owed. This is a common situation that many clients are faced with as they enter the tax resolution process. Cash flow problems also stress the urgent need to change overall financial behaviors and develop a coordinated plan to achieve financial freedom.

MYTH: It is best to work with a large tax representation firm that has ex-IRS agents working for them.

FACT: Enrolled Agents (EAs), Certified Public Accountants (CPAs), and attorneys are the only professionals who have demonstrated special competence in tax matters and have earned the privilege of practicing or representing clients before the IRS. Enrolled Agents, like attorneys and CPAs, are unrestricted as to which taxpayers they can represent, what types of matters they can handle, and in which IRS offices they can practice. Past service and technical experience with the IRS is one category that can qualify a person to become an Enrolled Agent.

The most important thing to look for when seeking professional help is integrity and expertise in tax resolution planning. Note the word “planning”. This is an essential element that tax resolution professionals should be focusing their attention. IRS experience definitely helps professionals understand the tax representation process. It does not always guarantee expertise in the important area of tax resolution planning.

MYTH: If someone is drowning in debt he or she should easily be able to qualify for “pennies on the dollar” resolution.

FACT: First of all, avoid any companies that use “pennies on the dollar” advertising or provide guarantees that you will qualify for an Offer in Compromise. The OIC program is the most widely advertised and promoted tax resolution technique marketed on television and the internet. OIC’s are also grossly oversold to people experiencing significant cash flow stress due to broader financial problems related to consumer debt. If you have the assets or future income potential to pay off your tax debt over time you will not qualify for an Offer in Compromise (except in special circumstances). The IRS only uses “allowable expenses” in the tax resolution analysis. Certain expenses such as credit cards, tuition, retirement contributions, and cable television bills are not allowable expenses during the tax resolution process.

MYTH: Large tax representation firms can perform their services more efficiently and at a lower cost than local Enrolled Agents, CPAs, or tax attorneys.

FACT: Costs vary from firm to firm. The level of customer service and professionalism also varies. If you take action and actively participate in the “LifeSpan Process of Tax Resolution and Financial Freedom” you will know where to find the most cost-effective solutions to your tax problems, whether or not you choose to use the services of professional tax representation.

MYTH: Tax resolution companies have a regulatory body that provides them with a specific set of guidelines and a professional code of ethics.

FACT: Currently there is no existing regulatory body to protect consumers doing business with tax representation firms. Most individual practitioners such as CPAs, EAs, and attorneys have professional standards they must uphold, but tax representation firms as a whole do not have anything other than legal precedent and IRS policies and procedures to guide them. The IRS issued a consumer alert to taxpayers in 2004 advising them to “beware of promoters’ claims that tax debts can be settled for “pennies on the dollar” through the Offer in Compromise Program”.

MYTH: Tax resolution firms represent me by appearing directly in front of the IRS on my behalf.

FACT: The majority of tax representation work occurs over the phone, internet, and through regular mail correspondence. Effective tax representation most often avoids the need for a one on one meeting with the IRS or appearances in Tax Court.

MYTH: The IRS may have forgotten about you if they do not contact you after a few years of not filing or paying taxes.

FACT: One of the biggest problems with the IRS collection process is the fact that it can often take years before the collection process actually begins. The tax system in our country is based on voluntary compliance. If you let months and years pass the IRS will eventually track you down, and you will be hit with enormous penalties and interest. This cycle of procrastination and avoidance only creates a bigger tax and financial problem. Delays and avoidance behaviors only intensify tax problems. Besides, if you owe taxes then you need to get the problem resolved quickly. Not paying taxes is essentially stealing from the federal government and all of the honest Americans who paid their taxes. Ignoring the problem will only make it worse.

MYTH: Taxes and finances are too confusing to understand. Besides, individuals are not capable of resolving tax problems by dealing with the IRS on their own.

FACT: Financial ignorance can be overcome through action and some basic education. Tax resolution and financial planning is 75% behavioral and 25% knowledge and technical expertise. Everyone has the ability to deal directly with the IRS themselves with proper guidance and preparation. Professionals play an important role in the tax resolution process. The ultimate responsibility lies with the individual to make smart financial decisions. Knowledge will only get you so far. You have to be able to take action and use financial knowledge to your benefit. Too many people with tax problems are paralyzed by fear because they do not understand basic concepts of money and taxes.

MYTH: If someone has a tax problem they do not need a financial plan.

FACT: This common misconception is the entire reason that the “Tax Resolution and Financial Freedom” process was created. Tax problems are most often the result of poor planning, economic hardships or emergencies, financial ignorance, fear, and procrastination. The only way to resolve tax problems and take control of your life as it relates to money is to establish and implement a tax and financial plan. Whether you call it financial planning or counseling the end result should always be an improved sense of direction when it comes to financial matters.