What To Do If You Owe Taxes To The IRS

Tax season has arrived and many Americans are still struggling financially. The recent economic crisis is still having a dire impact on the ability for families to manage their day to day finances. It is no surprise that an increasing number of people are having trouble meeting their income tax obligations. So what can you do if you find yourself unable to pay your income taxes?

Do not panic or procrastinate. IRS tax notices and balances due on recently filed tax returns can bring out a lot of negative emotions. Once you recognize that you owe taxes to the IRS take action immediately. Just because you cannot afford to pay the taxes due immediately does not mean there are no options. Many people make a tax problem worse by procrastinating or avoiding it altogether.

Create a financial plan. The creation of a financial plan is the single most important step to take when you owe taxes to the IRS. Why? A financial plan provides the guidance needed to help you address the tax situation and other important financial life goals. Unfortunately, most people tend to avoid this step altogether. When working with clients experiencing tax debt problems I refer to their financial plan as a tax resolution plan.

In order to resolve tax problems the most cost-effective way possible you need a tax resolution plan. The ultimate goal should be to get out of debt quickly so you can focus on other more important aspects of your financial life. Goals such as saving for your child's education, retirement, paying off debt, buying a house, etc. are difficult to achieve if you owe the IRS. A financial plan will also help you with future income tax planning. Some areas of focus could include maximizing all potential tax deductions, reducing future taxes, tax efficient investing, and planning ahead for future tax related events.

File your taxes. Go ahead and file a tax return even if you cannot pay the taxes owed in full. This will eliminate the failure to file or late filing penalties. In many cases the IRS will not work with you until you have filed all past due tax returns.

Stay current with future tax obligations. While you are working to resolve your tax debt problems you must stay current with your tax obligations. For self-employed individuals this requires you to continue (or begin) making estimated tax payments. If you are a wage earner you need to make sure that you are having sufficient taxes withheld from your pay.

Establish a plan. By following the financial planning process you should obtain a good understanding of where you stand financially. Complete a net worth analysis that explores everything you own and everything you owe to others. You will also need to complete a cash flow analysis that looks at your income and expenses. These two factors are critical when exploring all of your available options to resolve the tax debt.

Explore all available tax resolution options. If a taxpayer cannot pay taxes owed in full, the most common tax resolution alternative is to establish a payment plan or Installment Agreement. Other alternatives include Partial Payment Installment Agreements, Currently Not Collectible Status, bankruptcy, or requesting an Offer in Compromise. If you are considering an option other than setting up a payment plan you should consult an Enrolled Agent, CPA, or tax attorney.

Follow the plan and take action. Tax debt resolution requires discipline and planning. If you follow basic elements of the financial planning process you will be able to get out of debt sooner and move on with your life. Tax problems are stressful. However, effective solutions do exist for those that take action and follow a tax and financial plan.

For more information on the LifeSpan Process of Tax Resolution and Financial Freedom contact LifeSpan Financial Planning at 843-469-3505.

How to Get 2010 Off to a Great Financial Start

Plenty of people make resolutions to lose weight, get a new job or make other things happen in their personal life, but relatively few make solid resolutions about money. Make 2010 the year you’ll live a better life financially. Here are a few resolutions to think about:

Write down the things you really want in life: Have you ever written down the big things you want in life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers. Putting goals in writing gives them a formality and a starting point for the planning you must do.

Evaluate your risk tolerance: One of the most beneficial things financial planners do is help you articulate your financial goals and establish (or re-establish) your tolerance for risk. With the recent recession and market turbulence, many individuals would benefit from an analysis of how much risk they want (or need) to take based on what they want to achieve with their money.

Track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order whether you do it on paper or on your computer. Mint.com or QuickenOnline.com are free online programs that help you do this.

Get tax and planning advice toward retirement, other goals: Maybe you’ve always winged it with your taxes and considered your company 401(k) the ticket to your financial future. Chances are your planning is inadequate. Start getting references on good tax professionals and consider sitting down with a CERTIFIED FINANCIAL PLANNER™ professional to discuss your whole financial picture.

Cut your debt: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum -- on time, every month. And if you can pay extra toward mortgage, auto, student or other borrowings, do so.

Start saving -- or save more: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least 5-10 percent of your take-home pay based on your cash flow, and place the maximum amount in your retirement plans and savings.

Invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually use makes sense for your health as well as your insurance costs, do it. Keep in mind that bettering yourself is always a good investment.


Redefine the way you shop: If you’re an impulse shopper, break the habit in 2010. As a suggestion, get a legal pad and make that your centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), essential clothing or big expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.

Change the way you commute: If driving is the single best option to getting to work or other destinations, it’s tough to make that switch. But if you have the option to leave the car in the garage at least one day a week and walk, bike, carpool or take public transportation instead, try it. You’ll save money on gas, maintenance, insurance and parking costs, you’ll benefit the environment and in the case of walking or biking, the exercise may do you good.

Cut unnecessary expenses: Do you really need deluxe cable? How much are you paying for your Internet service? Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent and start setting that money aside on a regular basis.


January 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by LifeSpan Financial Planning, LLC, a local member of FPA serving Charleston, Mount Pleasant, Daniel Island, Goose Creek, Summerville, Moncks Corner, and Beaufort, South Carolina.

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.

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

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.

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.

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

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.