Travis Raml, CPA - Blog

WASHINGTON — The Internal Revenue Service today announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.

“We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”

Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.

In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt. That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.

To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. Again, there is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235, Collection Advisory Group Addresses, for address information.

Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if they are giving up ownership of the property, such as selling the property, at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in other assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without a tax lien discharge, the taxpayer may be unable to complete the home ownership change and the ownership title will remain clouded.

To apply for a tax lien discharge, applicants must follow directions in Publication 783, Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien. There is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235 for address information.

The IRS also urges people to contact the agency’s Collection Advisory Group early in the home sale or refinancing process so that it can begin work on their requests. People sometimes delay informing lenders of the tax liens, which only serves to delay the transaction.

Currently, there are more than 1 million federal tax liens outstanding tied to both real and personal property. The IRS issues more than 600,000 federal tax lien notices annually.

http://www.irs.gov/newsroom/article/0,,id=201343,00.html

With the ease and low expenses of forming an LLC, they are quickly becoming the entity of choice of many small business owners. However this type of entity can have some serious drawbacks if you simply form it without seeking some expert advice.

One of the more common mistakes I have been seeing is individuals forming LLCs and assuming they are corporations. In fact they are not taxed as corporations if formed by one individual and instead are treated as an ignored entity for tax purposes. Further the income they generate gets taxed on your personal tax return on Sch C and is subject to SE (Self-Employment) Tax. There are some circumstances where this does not apply, but generally if you run a business with the intention of generating a profit SE Tax applies.

So what is the big deal with SE Tax. Well this is the Social Security (6.2%) and Medicare (1.45%) (also known as FICA Taxes) that are normally deducted from your regular paycheck……..only doubled. You might ask why are they doubled. Well as a self-employed individual you are responsible for the employee and EMPLOYER (same as amount as the employee) share of FICA. No wait it gets worst. Unlike your regular income taxes, SE tax is not reduced by itemized deductions or tax credits.

So how is it calculated? You take your Sch C net income and multiply it by 92.35%. This is your net earnings from self-employment. Next multiply this amount by 15.3% and your have your SE Taxes due. The only real benefit is that you get to deduct 1/2 of the self employment taxes as a deduction on your 1040. But remember this simply reduces your taxable income, this is not a tax credit. You then add this tax with your regular income tax liability to arrive at your total tax liability. SE Tax in many cases can easily equal or exceed your regular income taxes, and if you do not plan correctly can lead to a huge tax headache at year end especially if you were expecting a refund.

So what can you do? My best advice is to contact me and for FREE I will tell you some of the options you have at your disposal. I can reached at (443) 927-9161 (MD), (703) 637-9881 (DC & VA), or by email at travis@ramlcpa.

A common request from some LLC owner(s) is to pay themselves a salary. Though it is possible it is unlikely this appropriate especially if the owner filed his or her own LLC filings. Single member LLC’s by default are treated as Sole-Proprietor (an ignored entity and with business income reported on schedule C of his or her personal tax return). Likewise multi-member LLC’s are by default treated as Partnerships (with business income reported on tax form 1065 with income and losses passed through to the partners).

In either case a salary is not permitted by the LLC owner(s). Instead the owner or partners can take distributions which can or can not have a bearing on their taxes. Regardless traditional paychecks and remittance of taxes through the organization is not appropriate.

So what can be done? In this case the LLC owner(s) have a couple options.

1) Continue to take distributions in liu of salary.
2) File form 8832 with the IRS to elect corporate tax status of the LLC with the IRS.

Under option (2) once the IRS has accepted the 8832 the LLC will be recognized as a corporation for tax purposes, and the owner(s) can generally begin to tax a salary.

However, special care should be taken before such decisions are made since election of corporate tax status can not generally be changed for 60 months after the effective date of the filing.

If this or other tax questions are concerning you please feel free to contact me (free of charge) and I will advise you of your available options. I can reached at (443) 927-9161 (MD), (703) 637-9881 (DC & VA), or by email at travis@ramlcpa.com.

Thanks,
Travis Raml, CPA
http://ramlcpa.com/

If you’re a small business owner you’ve probably seen those QuickBooks commercials showing the pleased business owners effortlessly entering transactions into QuickBooks and with a few simple clicks everything is complete………..if only if it were that simple.

If you’re a small business owner that has gone done this route there is a good chance that you’ve found yourself saying what did I get myself into. Whether it’s excess transactions, to many bank accounts, unreadable financial statements, or any host of additional problems you’ve quickly discovered that it’s not just a simple click.

First thing I tell clients who find themselves in this situation is don’t feel bad. It really is NOT your fault. The advertisements make it sound simple, and you’re concerned with saving a buck these days………but the fact is maintaining your own books can quickly become an unmanageable task, especially if you’re running most of the day to day operation of your business.

So what can you do? If you are committed to doing the books yourself, than I would suggest that we setup the QuickBooks for you and help train you to be successful. Most of this can be accomplished in just a few hours. If you have a limited volume of transactions and feel you have the time to handle it, this is a great option. We can even do quarterly reviews for you just to make sure your not veering off course during the year. If you have a relatively high volume of transactions or you simply don’t have the time to handle it, then we can do it for you. We’ve designed our services with affordability in mind and can meet virtually any budget.

If you’re ready to end the nightmares then feel free to contact me (free of charge) and we can discuss your situation in more detail. I can reached at (443) 927-9161 (MD), (703) 637-9881 (DC & VA), or by email at travis@ramlcpa.com.

Thanks,
Travis Raml, CPA

IR-2008-131, Nov. 24, 2008

WASHINGTON — The Internal Revenue Service today issued the 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

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55 cents per mile for business miles driven
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24 cents per mile driven for medical or moving purposes
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14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices. The rate for charitable purposes is set by law and is unchanged from 2008.

The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.

The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Revenue Procedure 2008-72 contains additional information on these standard mileage rates.

http://www.irs.gov/newsroom/article/0,,id=200505,00.html