September 24, 2024 • 31 mins
On this episode, we sit down with seasoned tax attorney, Tina Azarvand, as she shares expert tax strategies tailored specifically for beauty entrepreneurs. From exploring the benefits and drawbacks of sole proprietorships, LLCs, and S-Corps to emphasizing the importance of proactive tax planning, Tina equips you with the insights needed to optimize your tax obligations and compliance. She delves into the specifics of S-Corp salary requirements and new filing mandates under the Corporate Transparency Act, ensuring you make informed decisions for your business.
Learn more about Azarvand Tax Law: https://azarvandtaxlaw.com/
Contact Azarvand Tax Law: info@azarvandtaxlaw.com
Conversation highlights:
2:12 The pros and cons of different business classifications (LLC, S-corp, etc.)
9:03 The most common tax pitfalls of small businesses
14:02 The dangers of misclassifying your independent contractors
20:15 What to do if your business has fallen behind on taxes
28:37 Tina's two key tips for staying proactive with your business taxes
Watch the video version of this episode: https://youtu.be/uSois_fZUms
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Well, hello again and welcome to the Beauty Business
Strategies podcast.
Again, michael Yost here withyou, and today, as we've got
another great guest for you, andthis time we're trying to find
people from all types ofindustry, but still that apply
within the beauty industry.
And today we are joined by TinaAzarvand, and she is a tax
(00:25):
attorney and I think this isgoing to be a really we met just
to give a little background, wemet uh together in uh at uh a
conference.
We happen to be side by side,uh, the strategy booth and her
booth side by side.
We got it struck up a reallygreat conversation and I'm like
man, you man, you know againwhat you do and the things that
(00:46):
you deal with are so relevant toour industry in so many ways
that we should do a podcast.
And as a lot of these thingsget birthed in, here we are.
So, tina, how are you today?
I'm doing well, how are you?
I am good, I'm good.
So I just gave you just a shortlittle brief introduction just
a tax attorney, but just good.
So I just gave you just a shortlittle brief introduction, just
a tax attorney, but just giveagain the listener just a little
(01:08):
bit more.
Just expand a little bit moreabout what you do, what your
line of work is, scope, thingslike that.
Speaker 2 (01:14):
Sure.
So, yeah, I have my own tax lawfirm where we have tax
attorneys, CPAs and bookkeepersand we're 100 percent focused on
tax law for mostly employers,but we also help individuals as
well.
So we help employers plan forthe future, which is a big thing
that people miss.
You know, everyone has a taxpreparer, but not everyone has
(01:34):
someone planning for their taxes.
So we're kind of taking aproactive approach for people
and we help them minimize theirtax impact and we also do, you
know, a lot of collection work.
If you're you have liabilitieswith the IRS or if you're under
audit whether that's a sales taxaudit, income tax audit, erc
(01:57):
audits all types of audits welove.
Speaker 1 (01:57):
So, yeah, anything tax law related.
Really, I love the fact thatyou love the word audit and
basically it strikes fear intothe hearts of everyone else
listening.
So it's good to know there arepeople out there that are like
audit, cool, I got your back.
So that's awesome, that'sawesome.
So I think maybe the best placeto start would be this is let's
start with from a, from a taxstandpoint.
(02:19):
Let's just start with likefoundationally.
Start with like foundationally.
Give us some direction on andgive us some clarity around when
we're starting up a business ormaybe we even have one now.
But the best way to structureour businesses from a business
kind of entity standpoint we'retalking about LLC or S Corp or
(02:39):
you know just all the differentvariations are there.
I think a lot of times peoplejust aren't really certain about
where they should linethemselves up and typically we
just take the advice of whatsomeone else told us.
So give us a little bit moredepth in that area.
Speaker 2 (02:53):
Sure.
So yeah, there are a lot ofbenefits and always some
drawbacks to each type ofclassification that you can take
.
You know any business can startas a sole proprietorship.
That means you haven't formallyestablished it, you're
operating under your socialsecurity numbers.
So that's how most people starttheir business, but typically
shortly after people tend to gothe LLC route.
(03:16):
And then from there, if you'rean LLC, you can take an S-corp
election or also a C-corpelection, which is not very
common in this industrywhatsoever.
And then, of course, you knowthere's partnerships as well as
just outright corporations.
So the most common ones we seein this industry really are LLCs
and then S-corp elections,which you know, otherwise you
(03:38):
would be an LLC.
Those are the two most commonand both, you know, have their
own benefits and drawbacks mostcommon, and both, you know, have
their own benefits anddrawbacks.
The biggest benefit of an LLCover an S-corp is that it is
much more simple.
You know it's a disregardedentity for income tax purposes,
so everything flows through toyou.
You file your own 1040 and youdon't have to go file a
(04:00):
completely separate return forthat.
You know, if you have payrollyou are going to have to file
your 941s, but we're justtalking about the income tax
element, you know, whereas ifyou have an S Corp, you have to
file an 1120 S for your returnor for your business on an
annual basis and then inaddition to that there are other
requirements that you will haveto adhere to.
So you know, the biggestpitfall we really see here is
(04:23):
where people don't know therequirement with S-Corps that
you have to pay yourself what isconsidered a reasonable salary.
So it looks at the industrystandard of what someone would
be making in that position andyou have to pay yourself that.
So businesses that aren't atthe point that they're able to
pay themselves a salary as theowner should not be looking into
S-Corp status.
(04:43):
It would be more ideal it isalways more ideal to be an LLC
over a sole proprietorship.
You know, the only real benefitI can see of a sole
proprietorship over an LLC orany other structure is, you know
, it's really easy to start upthat way If you're not going to
have employees you're not, youknow, as a sole proprietorship
you're not going to have to filefor you know, under the
(05:05):
Corporate Transparency Act,which isn't too much work.
That's something that's new andwent into effect this year for
businesses, where you have tofile an annual report or not an
annual report, but on within thefirst year of the program going
into effect for 2024, everyonehas to file.
If they started their businessthis year, then they only have
(05:26):
90 days, but that is somethingthat wouldn't be applicable to
sole proprietorships.
So, you know, the biggestbenefit there is that it's just
very simple.
There's not additional filingslike there's going to be with an
LLC or S-Corp.
S-corp will have the mostpaperwork involved, but it also,
you know, has the most benefits.
A benefit I really like aboutS-Corp status is that if you're
(05:49):
in a state that has high incometax or you're also paying more
than $10,000 per year in salestax, there is no cap on the
state and local tax deduction.
That was capped at $10,000under the Tax Cuts and Jobs Act
of 2017.
But that cap of $10,000 doesnot apply to S-Corps.
(06:10):
So if you're paying a lot oftaxes through your business
whether that's, you know and youcan also do property tax with
income tax or sales tax withincome tax you can't do all
three, but you are able to dothat and that's a really big
benefit In terms of S Corp.
That's probably my favoritebenefit.
There are other tax savings.
(06:31):
You know you're going to betreated as an employee of the
business by default under an SCorp, so you know you're not
going to be subject to the selfemployment tax.
You can withhold FICA taxesthrough the business, and that's
another big benefit there.
So those are just, you know,some of the highlight points
that I like to touch on with SCorp, llc and sole
proprietorship.
(06:51):
I don't know if you want me togo more in depth.
I know there's probably a lotof topics to cover, so I don't
want to go on too long.
Speaker 1 (06:56):
No, I mean, that was.
That's awesome just to kind ofhear again, just again, some of
the benefits too to because Ithink a lot of people probably
typically think they probablybased it around the fact that,
oh, I have to be a certain sizein terms of sales or a certain
size in terms of employees to beable to maybe classify myself
in one of these ways outside ofsole proprietorship but either
(07:19):
LLC, S Corp or anything beyondthat, and that's really isn't
necessarily the case.
Speaker 2 (07:26):
Correct.
Yeah, so you don't need anyemployees with an LLC, you don't
need to treat yourself as anemployee with an S-corp.
You know you yourself wouldneed to be treated as an
employee because you're going toneed to receive a reasonable
salary, but it can just be youas an S-corp.
So that's a commonmisconception.
I'm glad you brought it up.
But yeah, there's no limit onhaving a minimum number of
(07:46):
employees.
So it's yeah, it's really.
It just comes down to if youcan pay yourself a reasonable
salary or not.
You know, that's really wherethe determining factor is of if
you should be doing an LLC overS-Corp, because generally, other
than the fact that there's morefilings required for an S-corp,
it's generally always better tobe an S-corp because there are
(08:08):
more tax savings.
Speaker 1 (08:09):
Awesome.
So you know that alone.
I think, you know, I could endthe podcast right here and be in
great shape, because you'vealready, I think, given us
things to think about that wemight not normally that the way
we might not normally viewthings.
So you know, and I think thisalso sheds a lot of light on the
fact that working with someonelike yourself you know, someone
(08:32):
that knows tax law, a taxattorney the benefits of working
with someone like that up,let's kind of go a little
different direction, because Ibet you most of your calls come
when it becomes like, uh-oh, ared flag has arisen or I've got
a little bit of trouble on myhorizon that I can view, and
(08:53):
that's probably when your phonestarts to ring more or less than
not in the setup to make surethat I'm in good shape.
And we'll kind of cover bothsides of this.
But let's start out from thisstandpoint what are some of the
pitfalls before we get into,kind of what happens if we get
into a little bit more of anegative situation?
But what are some of thepitfalls that you most often see
(09:13):
that lead us down a road wedon't want to go?
Speaker 2 (09:16):
Yeah.
So that's a good question.
You know, the most commonpitfalls in this industry really
number one comes down to, Iwould say more common than
anything is have an S-Corp,you're having FICA taxes
withheld from your W-2, this isnot the case.
(09:43):
But for anyone who isself-employed you have to be
paying estimated tax payments ona quarterly basis, as I
mentioned, and the penalties forfailure to do so can cap at 25%
of the balance that ends upbeing due and that amount is
also subject to interest.
So a lot of the time people endup nearly doubling what they
owe just in penalties andinterest, because not only is
(10:05):
there the underpayment ofestimated tax penalty, which
generally is, you know, 5% peroccurrence, but it accrues and
it can go up to 25% and that'sper tax year there's also a
failure to pay penalty.
So people you know they'll filean extension that from the
normal 4-15 due date they'll belike okay, I don't have to worry
(10:26):
about this until October 15th,but an extension to file is not
an extension to pay.
So you know that's a commonissue.
People don't realize becausethey'll have a balance due year
after year because they're notmaking their estimated tax
payment, which they're going toget dinged with on that.
And then not only that, butthey're also going to get hit
with the failure to pay penalty,which actually the IRS just
(10:48):
changed in the last couple ofmonths, where it did begin to
accrue at 0.5%, going up to 1%per month after they send youa
notice and this also caps at 25%.
They did just change that to be5% per month and it caps at 25%
.
So let's say you owe $10,000and you pay that late and you
(11:08):
cap out you now owe $15,000 plusthe interest.
So you probably owe $17,000 to$19,000.
So depending on when you pay it, you know, but that like it can
nearly double what you owe.
And then there are otherpenalties as well that are
common in the industry.
You know people do sometimesfile their returns late.
That's also another maximumpenalty of 25% for failure to
(11:30):
file.
So failure to pay, failure tofile, failure to make under
estimated tax payments and thenalso failure to deposit your
payroll penalties on time.
So either employers have toeither do it on a biweekly or
monthly basis of doing FICA taxdeposits.
Sometimes people don't realizethat and they think oh, these
are my quarterly payments andthey'll pay those on a quarterly
(11:51):
basis, but the penalties forfailure to pay on time for the
tax deposits is 15 percentmaximum for the tax deposits is
15% maximum.
So if you're even one day late,the penalty is 2% and the
longer it takes up to 16 days ishow long it takes to get to
that 15% cap.
But like it's just you know asnowball effect of if you start
(12:13):
paying late and then every youknow payment is a little bit
late, it's just going to be moreand more penalties and people
just they're like I don't evenknow why I owe this, I owe so
much, and they don't see thebreakdown of you know, a lot of
the time it's mostly penalties.
Sometimes people will have morepenalties due than the interest
, you know, just because.
Or penalties with interest duethan the tax just because it's
(12:34):
been sitting so long.
Now the interest rate for theIRS for under payments of tax
it's 8% per year.
So you know it's better to goout and get like a mortgage at
this point, which even theirrates are pretty bad.
So that's the most commonpitfall we see in the industry
is just people not knowing howthe penalties work and how to
(12:56):
avoid them.
Because you know, when you goto a tax preparer, most of the
time they're only looking atyour return to prepare it.
They're not proactivelyplanning for you.
That's not always the case, butI would say more than half of
tax preparers fail to be likehey, you're getting hit with a
balance due every year becauseyou're not making your estimated
tax payments.
Here's what can happen.
Here are the penalties.
(13:16):
All of the penalties aresubject to interest, plus the
underpayment itself is subjectto interest.
So they don't do that and then,year after year, they just have
a liability that keeps growingand growing and growing and then
eventually they just can'tafford to pay it.
And that's when you start tohave more issues with the IRS.
That's typically when we getthe call is they say, hey, we
owe, it's not, hey, we're.
There are some people who willcall and be like hey, we're.
(13:37):
You know there are some peoplewho are call and be like hey,
we're planning for this majortransaction and we're just
trying to be proactive.
But that's probably less than5% of people I talk to.
So you know, the big thing ispeople just get into the
snowball impact because you knowyou're not.
If you're not a taxprofessional, you're not
expected to know these thingsreally, but they affect everyone
(13:57):
and they don't really teach youabout them.
So that's the most commonpitfall.
The second most common pitfall,I'd say, is worker
misclassification, somisclassifying people as
independent contractors insteadof employees, you know.
So that happens a lot in thisindustry, but really it comes
down to, you know, the mainissue is that if you don't
(14:22):
withhold the proper taxes onbehalf of your employees, the
penalties can be super, supersevere.
So you know, there's all wealready mentioned the failure to
pay penalties and all of that,but there are a lot of different
other penalties for workroommisclassification.
So if it was unintentional, youknow it can be about.
It can be a hundred percent ofthe taxes due, plus additional
(14:46):
penalties.
If it's intentional, they canalso incarcerate you for up to
one year, and there are a lot ofdifferent penalties involved,
you know, because there willalso be possible penalties from
the department of labor thatrange from $10,000 to $25,000
per employee.
And then it's, you know it's100%, for both intentional and
(15:08):
unintentional.
It's 100% of the matching FICAtax and then 40% of the FICA
that wasn't withheld and then1.5 through 3% of the wages for
failure to withhold if it'sintentional and if it's
unintentional.
So you know it just like addsup, like.
I can't even give you a totalnumber on that.
Speaker 1 (15:23):
I was just doing math in my head.
I'm like, oh my word, that getsit just.
It's a snowball.
I mean, it just starts toreally.
It keeps gaining momentum thefarther it goes.
So when you're talking aboutmisclassification, just for
clarity on my end, I'minterpreting that as the idea of
(15:43):
we're talking about someone whomight say oh well, they're a
1099 or independent contractorright versus an employee.
You don't make that decision asthe employer, like, that is
that's out of our hands.
I think a lot of times and youknow, correct me on the areas
where I might be on on the righttrack and areas that might be a
(16:04):
little bit off.
That's why we've got you on thepodcast to get more, to get all
of us more clarity.
I think a lot of times it feelslike most employers feel as
though, well, they make thatdecision because this is how
they'd like it to be done andthat's just not how it works, is
it?
Speaker 2 (16:23):
No, yeah.
So you know there's a bunch offactors the IRS will look at.
They're really looking at thebehavioral control, financial
control and the relationship ofthe parties.
So you know if you're saying,hey, you have to come in
tomorrow 10 to 6, you knowthat's not someone who's
independently working, they'renot setting their own hours.
You know if you're providingthem the equipment, that's not
(16:43):
someone doing it independently.
For example, if there's acontract that says you know, hey
, you're an independentcontractor and you are
responsible for your ownequipment, you have to pay a
contribution towards use,whatever it may be, you know
that points towards anindependent contractor.
So there's a ton of differentfactors to go through.
But really, like you said, it'snot the employer's
determination.
(17:04):
You're either an employee oryou're an independent contractor
.
And being familiar with whatthat test looks like is very
important before you classifysomeone as an independent
contractor, because there is amechanism it's called a form SSA
where the worker can justrequest for the IRS to determine
their worker status, and thatcan happen on the state end as
(17:27):
well.
So there's a state version ofthat.
So it can happen from either.
But at that point you know it'svery hard to come back from
once the IRS audits you forworker classification, because
that's when it becomes either.
It was an intentional orunintentional, and what are your
penalties going to be based onthat?
You know.
So people don't realize thatit's such a big issue because
(17:49):
then they'll have a disgruntledworker that leaves and they're
like you know what I shouldn'thave?
I should have had them withholdmy FICA taxes.
Now I have a larger taxliability because you know,
obviously as an independentcontractor you're fully liable
for your self-employment taxes.
So again they have to maketheir own quarterly estimated
tax payments and you know it's15.4, 15.6% total for the tax
(18:11):
that they pay, whereas as anemployee 50% of that is paid by
the employer.
So it's always better for themto be an employee versus an
independent contractor.
But for employers, you knowthey have incentive to have
independent contractors insteadof employees because you know
there's no overtime, there's nobenefits, you're not paying FICA
taxes on their behalf.
(18:31):
So sometimes people will be likewell, I can get away with it,
like no, no one's going to know,or what's the difference, and
they don't realize like thesnowball effect it can have.
You know the good thing is ifpeople have been misclassifying
their workers, there is avoluntary disclosure program
through the IRS.
So you can generally you don'tforego all of the penalties, but
you can forego most penaltiesaltogether.
(18:52):
You know they're going to wantrepayment of the taxes and all
of that, but then they're notgoing to be looking at it from
the perspective of you didn'tdisclose this.
You know, if you come to themand say, hey, like I'm trying to
fix this issue, I didn't know.
You know it's not the end ofthe world, but I don't ever
recommend, people will be like,well, I'll just roll the dice,
like you know.
How are they going to know?
They haven't caught me thislong, but the IRS is catching up
(19:14):
.
Their technology is improvingquickly and all it takes is one
worker to file that form and itcan literally destroy a business
, especially if they find you tobe intentional, because, like I
said, they can literallyincarcerate you for up to a year
and the penalties are very,very, very severe.
Speaker 1 (19:30):
So not to freak anyone out, but it's just.
Well, no, I think it's listen,I think a little freak out is
also a little bit important aspart of this, because this is
what we want to avoid.
So let's let's kind of continuethat conversation a little bit
is the idea of, let's say, youhave fallen behind on some taxes
(19:50):
.
Let's say you're late with somepayments.
Let's say, you know there'ssome situations like that going
on, as you just mentioned about.
In that situation, hey, listen,here's what you can do.
There's a voluntary way to helpyou know if we miss
classifications, that, to helpyou know if we miss
(20:12):
classifications, there's ways tokind of make that be not as
painful as it possibly could andget right.
What about situations where youknow what?
Maybe someone that is listeningor something like that, is
saying you know what, I knowI've fallen a little bit behind.
I know this, I know this.
What would some advice that youwould give to people that might
be in a situation that is anegative situation?
Speaker 2 (20:33):
Yeah, so definitely, you know, don't?
It's not something you want tobury your head in the sand with.
You know, because a lot ofpeople are like, oh, I just want
to avoid it, I don't even wantto look at the notices.
But after a point, procedurallythe IRS can enforce the
collection where they can.
You know, garnish your wages orany payments coming into your
account.
They can levy assets.
(20:53):
Typically they go for bankaccounts and you'll discover
that after the fact, whenthey've already done it, you
know you'll go to like, go inyour bank account and be like
where'd all my money go?
You know they'll send younotices of intent to levy, but
they won't tell you when they'regoing to levy.
So it's kind of a gamble there.
They can file tax liens and ifyou owe over a certain point
it's about it's either around 52or 62,000, with tax penalties
(21:17):
and interest due combined theycan suspend or seize your US
passport.
So they can literally strandyou in the US and make it so you
can't travel.
So that is a change that'shappened in the last 10 years.
It wasn't something they couldalways do, but that's a really
powerful enforcement tool theyhave now.
So you know, but if you getinto what's called a reasonable
(21:39):
collection alternative.
None of those things, minus taxliens, will happen as long as
you stay compliant.
So that's what a lot of peopledon't realize is the IRS is only
scary if you ignore them, likeif you do try to resolve it,
even if you can't pay it in full.
There are resolutions, you know.
So number one, most common thatpeople know about, is
installment agreements.
It's literally a payment plan.
(22:00):
You know you can pay dependingon how much you owe.
You don't have to submitfinancials sometimes.
Sometimes you do, and thensometimes they'll let you pay it
, even through the collectionstatute expiration date, because
the IRS, they only have 10years from the date of
assessment to collect the tax.
You know, absent there are sometolling events that can pause
(22:20):
that and extend it a little bit,but if they don't collect it
within that date then they haveto write it off.
So they do have the paymentplan options that will go
through the collection statuteexpiration date.
And then another really goodoption that you know is actually
pretty common in this industryis the offer and compromise
option.
There's four different types ofoffers.
(22:41):
One is doubt as to liability.
You're coming to the IRO saying, hey, I'm disputing that I
actually owe this.
Here's the proof.
I don't know it.
You're coming to the IRS saying, hey, I'm disputing that I
actually owe this.
Here's the proof.
I don't know it.
More commonly is the two doubtas to collectability and then
doubt as to collectability withspecial circumstances.
Doubt as to collectability issaying, hey, irs, I can't afford
to pay this without suffering afinancial hardship.
(23:02):
So you're just going, based onthe fact that it looks at your
income versus expenses and thetotal amount of equity, and
they're going to consider thingslike your ability to produce
future income if they enforcethe tax, your ability to produce
or provide for your health andwelfare, all of those things you
know.
And then, doubtless, tocollectability with special
(23:22):
circumstances.
It's similar, but it's saying,hey, I could pay this tax in
full, but it looks, or it lookslike I could pay this tax in
full, but I have specialcircumstances that it's going to
create me uh, create afinancial hardship for me if I
actually do so.
Let's say, you know you havesome serious medical conditions
or it's going to cause it, soyou have to shut your business
(23:45):
down and there goes your abilityto produce your income
completely.
You know so differentcircumstances like that.
And then the fourth one, whichis the least common it's less
than 2% of all offers submittedis based on effective tax
administration.
It's saying I could pay this infull, but I shouldn't have to
pay it because of some publicpolicy reason, and facilitating
collection of this tax liabilitywill undermine the public's
(24:09):
confidence in the tax system.
So very, very, very uncommonand very rare, you know, that
typically comes out when peoplehave been defrauded, something
really bad has happened to themand it would just kind of be a
wrong situation to collect fromthem.
You know, but that's why it'snot common at all, and you also
have to have the ability to payin the amount 100%.
(24:29):
So there's four different typesof options, you know.
So it's very unique to thetaxpayer situation.
The two most common in thisindustry, though, are doubt as
to collectability, and doubt asto collectability with special
circumstances, and then thethird route that people can take
, but it's only really for ifyour insolvent is currently not
collectible status.
It's where the IRS will giveyou a two-year hold where it
(24:53):
doesn't pause the collectionstatute but it does pause their
enforcement actions.
So they'll just send you annualreminders during those two
years, and then they'll onlyoffset your refunds during that
time, but they won't do anythingelse.
They're not going to levy youor anything like that, and then
it can be renewed.
But you know, it's kind of atemporary fix to a long term
issue.
So that really is only goodwhen businesses are truly
(25:16):
insolvent and have a foreseeablefuture of continuing to be
insolvent.
So those are the main.
You know ways to resolve issues.
Another thing I do want to touchon is penalty abatement.
A lot of people don't knowthere is the option to get
penalties abated through the IRS.
There are eight different typesof penalties that you can get
(25:36):
abated, including the failure topay, failure to file, failure
to deposit your payroll, yourFICA tax deposits and
underpayment of estimated taxliabilities.
So those are the most commonpenalties you'll see anyways,
and they can be abated under twodifferent programs.
One is reasonable cost penaltyabatement.
So you have to show that youtook all reasonable steps and
(25:59):
care and prudence butnonetheless were unable to
either file a return or to paythe taxes due for some
extenuating circumstances.
So let's say you got hit by ahurricane or you know you had a
spouse die or you had seriousmedical conditions or your house
burned down or something thatreally severely happened, and it
(26:19):
doesn't just have to be thosethings.
Those are more common, you know, but it can also be, you know,
reliance on bad tax advice isone that's a little harder, but
it is one of the options youknow, and that's not a complete
list.
I'm just giving some examples.
But you can do a writtenrequest and submit that to the
IRS.
It normally takes them about atleast six to nine months to
respond to that.
(26:39):
They are very slow.
And then the other option isfirst-time penalty abatement,
which is very little known bymost people.
But the IRS has like a one timeprogram where you can, as long
as you haven't had penalties inthe three prior years, you can,
and you don't have to have anyreasonableness.
You can say you know what?
I really wanted to buy a newcar last year so I didn't pay my
(27:00):
taxes, and they will still giveit to you as long as you
haven't accrued penalties inthose three prior years.
But first-time abatement, youcould just do that over the
phone and they'll just like doit on the spot.
But I don't ever recommendgetting penalty abatement until
the liability is about paid infull, because the penalties will
start to accrue again andthat's what a lot of people
don't realize.
So you do have to be verystrategic in your timing of
(27:22):
submitting for penalty abatement.
But those are the two programs.
Is first time abatement, youknow which I recommend, like
really think that out of whenyou want to use it because, like
I said, you don't have to havebeen reasonable Like you can
save it, for hopefully you neverhave a situation where you like
forgot to pay your taxes.
But if you did forget to payyour taxes, you know you could
just save it because that is notreasonable cause.
(27:44):
But yeah, that's those are someof the collection alternatives,
just in a nutshell.
Speaker 1 (27:50):
I love the fact that you deliver all of this news
with a smile on your face, likethe whole time you know here's
what I'm getting out of this.
As we start to kind of wrapthings up here, I think one
thing to me is becomingextremely clear is the idea of
having someone that's a taxpreparer, such as again, we
think about our accountants andthings like that is a much
(28:13):
different person than like we'retalking with you, someone that
can help you plan, make a planfor what's happening in your
company, a plan for taxes,because we don't wanna be in
these types of situations thatwe discuss.
We don't wanna get be in thesetypes of situations that we
discuss.
We don't want to get into thisnegative situation.
So, as we wrap up, I'm going toask you for I want to end on a
(28:35):
positive note with this Give metwo things that you would say.
Hey, listen, here's what Iwould advise when it comes to
just being proactive in the lifeof a business, a life of a
business owner.
That what would you say?
Proactively, let's stay on the,let's make our lives easy,
(28:56):
let's stay in the good course.
What are the two things thatyou would jump out to you?
Speaker 2 (29:01):
So you know I always recommend people meet with
whoever does their tax planningor get someone to do tax
planning.
You know, on either a quarterlyor semi-annual basis, of just
sitting down and being like allright, what are your profits
looking like this year?
You know we need a plan forlike.
Are you going to have a largeliability?
Is there anything we can do nowto reduce that?
You know whether that'spurchasing new equipment, which
(29:23):
is under section 179, which youcan immediately depreciate
things like that of bringingdown your liability.
Are you missing any tax credits?
The work opportunity tax credit, for example, commonly missed.
We didn't really talk about it.
I won't go into it too much,but that's one that's commonly
missed in this industry as well.
And just having these eitherquarterly or semi-annual
check-ins of what your businessplan is, what your profits are
(29:46):
looking like, where you want totake things, and then just
making sure you are on track tohave your taxes paid in full
before the time the return isactually due, because you don't
want to accrue any penaltiesbecause, as you know, I think
we've all learned they add upreally, really quick.
Speaker 1 (30:03):
So I was going to say you illustrated that very
clearly, but that's awesome.
I mean, this is what we need.
So, tina, this has been afantastic time with you,
obviously, a wealth ofinformation.
If someone is listening andthey wanted to connect with you
and dive in more into theirsituation and have some
(30:24):
questions that are specific tothem, what's the best way to to,
uh, to get in touch with you?
Speaker 2 (30:30):
Um, yeah, so they can go to our website or um send us
an email.
Speaker 1 (30:36):
So maybe, if you want , I can do like a quick screen,
share with it and then yeah,what we could do is uh, we can
put that in uh in the link inthe description.
So description.
So, we'll definitely do that.
So, like I said, if you want toconnect with Tina, we'll get
all of her information.
We'll put it in the descriptionand you'll have that.
And if you want to reach out,that's awesome.
Any last as we wrap everythingup today, any last thing you'd
(31:00):
like to share with the listener?
Speaker 2 (31:03):
No, no, I appreciate it and thank you for doing this
information share.
I just know spelling my lastname isn't always easy, but this
has been a pleasure.
I hope you guys learnedsomething and, yeah, I
appreciate your time as well,it's been awesome.
Speaker 1 (31:16):
I know it's been helpful to me and I'm sure it's
been helpful to everyone else.
So thank you, tina, and thankyou to everyone that listened in
.
We look forward to seeing youon our next podcast.
Until then, have a great day.
Speaker 3 (31:27):
Thanks again for listening to the Beauty Business
Strategies Podcast.
If you liked this episode, besure to hit follow To learn more
about how strategies can helpcreate more fun, profit and
growth potential for you, yourcompany and your team.
We invite you to schedule afree 60-minute strategy session
by clicking the direct link inthe description of this episode.
Well, hello again and welcome to the Beauty Business
Strategies podcast.
Again, michael Yost here withyou, and today, as we've got
another great guest for you, andthis time we're trying to find
people from all types ofindustry, but still that apply
within the beauty industry.
And today we are joined by TinaAzarvand, and she is a tax
(00:25):
attorney and I think this isgoing to be a really we met just
to give a little background, wemet uh together in uh at uh a
conference.
We happen to be side by side,uh, the strategy booth and her
booth side by side.
We got it struck up a reallygreat conversation and I'm like
man, you man, you know againwhat you do and the things that
(00:46):
you deal with are so relevant toour industry in so many ways
that we should do a podcast.
And as a lot of these thingsget birthed in, here we are.
So, tina, how are you today?
I'm doing well, how are you?
I am good, I'm good.
So I just gave you just a shortlittle brief introduction just
a tax attorney, but just good.
So I just gave you just a shortlittle brief introduction, just
a tax attorney, but just giveagain the listener just a little
(01:08):
bit more.
Just expand a little bit moreabout what you do, what your
line of work is, scope, thingslike that.
Speaker 2 (01:14):
Sure.
So, yeah, I have my own tax lawfirm where we have tax
attorneys, CPAs and bookkeepersand we're 100 percent focused on
tax law for mostly employers,but we also help individuals as
well.
So we help employers plan forthe future, which is a big thing
that people miss.
You know, everyone has a taxpreparer, but not everyone has
(01:34):
someone planning for their taxes.
So we're kind of taking aproactive approach for people
and we help them minimize theirtax impact and we also do, you
know, a lot of collection work.
If you're you have liabilitieswith the IRS or if you're under
audit whether that's a sales taxaudit, income tax audit, erc
(01:57):
audits all types of audits welove.
Speaker 1 (01:57):
So, yeah, anything tax law related.
Really, I love the fact thatyou love the word audit and
basically it strikes fear intothe hearts of everyone else
listening.
So it's good to know there arepeople out there that are like
audit, cool, I got your back.
So that's awesome, that'sawesome.
So I think maybe the best placeto start would be this is let's
start with from a, from a taxstandpoint.
(02:19):
Let's just start with likefoundationally.
Start with like foundationally.
Give us some direction on andgive us some clarity around when
we're starting up a business ormaybe we even have one now.
But the best way to structureour businesses from a business
kind of entity standpoint we'retalking about LLC or S Corp or
(02:39):
you know just all the differentvariations are there.
I think a lot of times peoplejust aren't really certain about
where they should linethemselves up and typically we
just take the advice of whatsomeone else told us.
So give us a little bit moredepth in that area.
Speaker 2 (02:53):
Sure.
So yeah, there are a lot ofbenefits and always some
drawbacks to each type ofclassification that you can take
.
You know any business can startas a sole proprietorship.
That means you haven't formallyestablished it, you're
operating under your socialsecurity numbers.
So that's how most people starttheir business, but typically
shortly after people tend to gothe LLC route.
(03:16):
And then from there, if you'rean LLC, you can take an S-corp
election or also a C-corpelection, which is not very
common in this industrywhatsoever.
And then, of course, you knowthere's partnerships as well as
just outright corporations.
So the most common ones we seein this industry really are LLCs
and then S-corp elections,which you know, otherwise you
(03:38):
would be an LLC.
Those are the two most commonand both, you know, have their
own benefits and drawbacks mostcommon, and both, you know, have
their own benefits anddrawbacks.
The biggest benefit of an LLCover an S-corp is that it is
much more simple.
You know it's a disregardedentity for income tax purposes,
so everything flows through toyou.
You file your own 1040 and youdon't have to go file a
(04:00):
completely separate return forthat.
You know, if you have payrollyou are going to have to file
your 941s, but we're justtalking about the income tax
element, you know, whereas ifyou have an S Corp, you have to
file an 1120 S for your returnor for your business on an
annual basis and then inaddition to that there are other
requirements that you will haveto adhere to.
So you know, the biggestpitfall we really see here is
(04:23):
where people don't know therequirement with S-Corps that
you have to pay yourself what isconsidered a reasonable salary.
So it looks at the industrystandard of what someone would
be making in that position andyou have to pay yourself that.
So businesses that aren't atthe point that they're able to
pay themselves a salary as theowner should not be looking into
S-Corp status.
(04:43):
It would be more ideal it isalways more ideal to be an LLC
over a sole proprietorship.
You know, the only real benefitI can see of a sole
proprietorship over an LLC orany other structure is, you know
, it's really easy to start upthat way If you're not going to
have employees you're not, youknow, as a sole proprietorship
you're not going to have to filefor you know, under the
(05:05):
Corporate Transparency Act,which isn't too much work.
That's something that's new andwent into effect this year for
businesses, where you have tofile an annual report or not an
annual report, but on within thefirst year of the program going
into effect for 2024, everyonehas to file.
If they started their businessthis year, then they only have
(05:26):
90 days, but that is somethingthat wouldn't be applicable to
sole proprietorships.
So, you know, the biggestbenefit there is that it's just
very simple.
There's not additional filingslike there's going to be with an
LLC or S-Corp.
S-corp will have the mostpaperwork involved, but it also,
you know, has the most benefits.
A benefit I really like aboutS-Corp status is that if you're
(05:49):
in a state that has high incometax or you're also paying more
than $10,000 per year in salestax, there is no cap on the
state and local tax deduction.
That was capped at $10,000under the Tax Cuts and Jobs Act
of 2017.
But that cap of $10,000 doesnot apply to S-Corps.
(06:10):
So if you're paying a lot oftaxes through your business
whether that's, you know and youcan also do property tax with
income tax or sales tax withincome tax you can't do all
three, but you are able to dothat and that's a really big
benefit In terms of S Corp.
That's probably my favoritebenefit.
There are other tax savings.
(06:31):
You know you're going to betreated as an employee of the
business by default under an SCorp, so you know you're not
going to be subject to the selfemployment tax.
You can withhold FICA taxesthrough the business, and that's
another big benefit there.
So those are just, you know,some of the highlight points
that I like to touch on with SCorp, llc and sole
proprietorship.
(06:51):
I don't know if you want me togo more in depth.
I know there's probably a lotof topics to cover, so I don't
want to go on too long.
Speaker 1 (06:56):
No, I mean, that was.
That's awesome just to kind ofhear again, just again, some of
the benefits too to because Ithink a lot of people probably
typically think they probablybased it around the fact that,
oh, I have to be a certain sizein terms of sales or a certain
size in terms of employees to beable to maybe classify myself
in one of these ways outside ofsole proprietorship but either
(07:19):
LLC, S Corp or anything beyondthat, and that's really isn't
necessarily the case.
Speaker 2 (07:26):
Correct.
Yeah, so you don't need anyemployees with an LLC, you don't
need to treat yourself as anemployee with an S-corp.
You know you yourself wouldneed to be treated as an
employee because you're going toneed to receive a reasonable
salary, but it can just be youas an S-corp.
So that's a commonmisconception.
I'm glad you brought it up.
But yeah, there's no limit onhaving a minimum number of
(07:46):
employees.
So it's yeah, it's really.
It just comes down to if youcan pay yourself a reasonable
salary or not.
You know, that's really wherethe determining factor is of if
you should be doing an LLC overS-Corp, because generally, other
than the fact that there's morefilings required for an S-corp,
it's generally always better tobe an S-corp because there are
(08:08):
more tax savings.
Speaker 1 (08:09):
Awesome.
So you know that alone.
I think, you know, I could endthe podcast right here and be in
great shape, because you'vealready, I think, given us
things to think about that wemight not normally that the way
we might not normally viewthings.
So you know, and I think thisalso sheds a lot of light on the
fact that working with someonelike yourself you know, someone
(08:32):
that knows tax law, a taxattorney the benefits of working
with someone like that up,let's kind of go a little
different direction, because Ibet you most of your calls come
when it becomes like, uh-oh, ared flag has arisen or I've got
a little bit of trouble on myhorizon that I can view, and
(08:53):
that's probably when your phonestarts to ring more or less than
not in the setup to make surethat I'm in good shape.
And we'll kind of cover bothsides of this.
But let's start out from thisstandpoint what are some of the
pitfalls before we get into,kind of what happens if we get
into a little bit more of anegative situation?
But what are some of thepitfalls that you most often see
(09:13):
that lead us down a road wedon't want to go?
Speaker 2 (09:16):
Yeah.
So that's a good question.
You know, the most commonpitfalls in this industry really
number one comes down to, Iwould say more common than
anything is have an S-Corp,you're having FICA taxes
withheld from your W-2, this isnot the case.
(09:43):
But for anyone who isself-employed you have to be
paying estimated tax payments ona quarterly basis, as I
mentioned, and the penalties forfailure to do so can cap at 25%
of the balance that ends upbeing due and that amount is
also subject to interest.
So a lot of the time people endup nearly doubling what they
owe just in penalties andinterest, because not only is
(10:05):
there the underpayment ofestimated tax penalty, which
generally is, you know, 5% peroccurrence, but it accrues and
it can go up to 25% and that'sper tax year there's also a
failure to pay penalty.
So people you know they'll filean extension that from the
normal 4-15 due date they'll belike okay, I don't have to worry
(10:26):
about this until October 15th,but an extension to file is not
an extension to pay.
So you know that's a commonissue.
People don't realize becausethey'll have a balance due year
after year because they're notmaking their estimated tax
payment, which they're going toget dinged with on that.
And then not only that, butthey're also going to get hit
with the failure to pay penalty,which actually the IRS just
(10:48):
changed in the last couple ofmonths, where it did begin to
accrue at 0.5%, going up to 1%per month after they send youa
notice and this also caps at 25%.
They did just change that to be5% per month and it caps at 25%
.
So let's say you owe $10,000and you pay that late and you
(11:08):
cap out you now owe $15,000 plusthe interest.
So you probably owe $17,000 to$19,000.
So depending on when you pay it, you know, but that like it can
nearly double what you owe.
And then there are otherpenalties as well that are
common in the industry.
You know people do sometimesfile their returns late.
That's also another maximumpenalty of 25% for failure to
(11:30):
file.
So failure to pay, failure tofile, failure to make under
estimated tax payments and thenalso failure to deposit your
payroll penalties on time.
So either employers have toeither do it on a biweekly or
monthly basis of doing FICA taxdeposits.
Sometimes people don't realizethat and they think oh, these
are my quarterly payments andthey'll pay those on a quarterly
(11:51):
basis, but the penalties forfailure to pay on time for the
tax deposits is 15 percentmaximum for the tax deposits is
15% maximum.
So if you're even one day late,the penalty is 2% and the
longer it takes up to 16 days ishow long it takes to get to
that 15% cap.
But like it's just you know asnowball effect of if you start
(12:13):
paying late and then every youknow payment is a little bit
late, it's just going to be moreand more penalties and people
just they're like I don't evenknow why I owe this, I owe so
much, and they don't see thebreakdown of you know, a lot of
the time it's mostly penalties.
Sometimes people will have morepenalties due than the interest
, you know, just because.
Or penalties with interest duethan the tax just because it's
(12:34):
been sitting so long.
Now the interest rate for theIRS for under payments of tax
it's 8% per year.
So you know it's better to goout and get like a mortgage at
this point, which even theirrates are pretty bad.
So that's the most commonpitfall we see in the industry
is just people not knowing howthe penalties work and how to
(12:56):
avoid them.
Because you know, when you goto a tax preparer, most of the
time they're only looking atyour return to prepare it.
They're not proactivelyplanning for you.
That's not always the case, butI would say more than half of
tax preparers fail to be likehey, you're getting hit with a
balance due every year becauseyou're not making your estimated
tax payments.
Here's what can happen.
Here are the penalties.
(13:16):
All of the penalties aresubject to interest, plus the
underpayment itself is subjectto interest.
So they don't do that and then,year after year, they just have
a liability that keeps growingand growing and growing and then
eventually they just can'tafford to pay it.
And that's when you start tohave more issues with the IRS.
That's typically when we getthe call is they say, hey, we
owe, it's not, hey, we're.
There are some people who willcall and be like hey, we're.
(13:37):
You know there are some peoplewho are call and be like hey,
we're planning for this majortransaction and we're just
trying to be proactive.
But that's probably less than5% of people I talk to.
So you know, the big thing ispeople just get into the
snowball impact because you knowyou're not.
If you're not a taxprofessional, you're not
expected to know these thingsreally, but they affect everyone
(13:57):
and they don't really teach youabout them.
So that's the most commonpitfall.
The second most common pitfall,I'd say, is worker
misclassification, somisclassifying people as
independent contractors insteadof employees, you know.
So that happens a lot in thisindustry, but really it comes
down to, you know, the mainissue is that if you don't
(14:22):
withhold the proper taxes onbehalf of your employees, the
penalties can be super, supersevere.
So you know, there's all wealready mentioned the failure to
pay penalties and all of that,but there are a lot of different
other penalties for workroommisclassification.
So if it was unintentional, youknow it can be about.
It can be a hundred percent ofthe taxes due, plus additional
(14:46):
penalties.
If it's intentional, they canalso incarcerate you for up to
one year, and there are a lot ofdifferent penalties involved,
you know, because there willalso be possible penalties from
the department of labor thatrange from $10,000 to $25,000
per employee.
And then it's, you know it's100%, for both intentional and
(15:08):
unintentional.
It's 100% of the matching FICAtax and then 40% of the FICA
that wasn't withheld and then1.5 through 3% of the wages for
failure to withhold if it'sintentional and if it's
unintentional.
So you know it just like addsup, like.
I can't even give you a totalnumber on that.
Speaker 1 (15:23):
I was just doing math in my head.
I'm like, oh my word, that getsit just.
It's a snowball.
I mean, it just starts toreally.
It keeps gaining momentum thefarther it goes.
So when you're talking aboutmisclassification, just for
clarity on my end, I'minterpreting that as the idea of
(15:43):
we're talking about someone whomight say oh well, they're a
1099 or independent contractorright versus an employee.
You don't make that decision asthe employer, like, that is
that's out of our hands.
I think a lot of times and youknow, correct me on the areas
where I might be on on the righttrack and areas that might be a
(16:04):
little bit off.
That's why we've got you on thepodcast to get more, to get all
of us more clarity.
I think a lot of times it feelslike most employers feel as
though, well, they make thatdecision because this is how
they'd like it to be done andthat's just not how it works, is
it?
Speaker 2 (16:23):
No, yeah.
So you know there's a bunch offactors the IRS will look at.
They're really looking at thebehavioral control, financial
control and the relationship ofthe parties.
So you know if you're saying,hey, you have to come in
tomorrow 10 to 6, you knowthat's not someone who's
independently working, they'renot setting their own hours.
You know if you're providingthem the equipment, that's not
(16:43):
someone doing it independently.
For example, if there's acontract that says you know, hey
, you're an independentcontractor and you are
responsible for your ownequipment, you have to pay a
contribution towards use,whatever it may be, you know
that points towards anindependent contractor.
So there's a ton of differentfactors to go through.
But really, like you said, it'snot the employer's
determination.
(17:04):
You're either an employee oryou're an independent contractor
.
And being familiar with whatthat test looks like is very
important before you classifysomeone as an independent
contractor, because there is amechanism it's called a form SSA
where the worker can justrequest for the IRS to determine
their worker status, and thatcan happen on the state end as
(17:27):
well.
So there's a state version ofthat.
So it can happen from either.
But at that point you know it'svery hard to come back from
once the IRS audits you forworker classification, because
that's when it becomes either.
It was an intentional orunintentional, and what are your
penalties going to be based onthat?
You know.
So people don't realize thatit's such a big issue because
(17:49):
then they'll have a disgruntledworker that leaves and they're
like you know what I shouldn'thave?
I should have had them withholdmy FICA taxes.
Now I have a larger taxliability because you know,
obviously as an independentcontractor you're fully liable
for your self-employment taxes.
So again they have to maketheir own quarterly estimated
tax payments and you know it's15.4, 15.6% total for the tax
(18:11):
that they pay, whereas as anemployee 50% of that is paid by
the employer.
So it's always better for themto be an employee versus an
independent contractor.
But for employers, you knowthey have incentive to have
independent contractors insteadof employees because you know
there's no overtime, there's nobenefits, you're not paying FICA
taxes on their behalf.
(18:31):
So sometimes people will be likewell, I can get away with it,
like no, no one's going to know,or what's the difference, and
they don't realize like thesnowball effect it can have.
You know the good thing is ifpeople have been misclassifying
their workers, there is avoluntary disclosure program
through the IRS.
So you can generally you don'tforego all of the penalties, but
you can forego most penaltiesaltogether.
(18:52):
You know they're going to wantrepayment of the taxes and all
of that, but then they're notgoing to be looking at it from
the perspective of you didn'tdisclose this.
You know, if you come to themand say, hey, like I'm trying to
fix this issue, I didn't know.
You know it's not the end ofthe world, but I don't ever
recommend, people will be like,well, I'll just roll the dice,
like you know.
How are they going to know?
They haven't caught me thislong, but the IRS is catching up
(19:14):
.
Their technology is improvingquickly and all it takes is one
worker to file that form and itcan literally destroy a business
, especially if they find you tobe intentional, because, like I
said, they can literallyincarcerate you for up to a year
and the penalties are very,very, very severe.
Speaker 1 (19:30):
So not to freak anyone out, but it's just.
Well, no, I think it's listen,I think a little freak out is
also a little bit important aspart of this, because this is
what we want to avoid.
So let's let's kind of continuethat conversation a little bit
is the idea of, let's say, youhave fallen behind on some taxes
(19:50):
.
Let's say you're late with somepayments.
Let's say, you know there'ssome situations like that going
on, as you just mentioned about.
In that situation, hey, listen,here's what you can do.
There's a voluntary way to helpyou know if we miss
classifications, that, to helpyou know if we miss
(20:12):
classifications, there's ways tokind of make that be not as
painful as it possibly could andget right.
What about situations where youknow what?
Maybe someone that is listeningor something like that, is
saying you know what, I knowI've fallen a little bit behind.
I know this, I know this.
What would some advice that youwould give to people that might
be in a situation that is anegative situation?
Speaker 2 (20:33):
Yeah, so definitely, you know, don't?
It's not something you want tobury your head in the sand with.
You know, because a lot ofpeople are like, oh, I just want
to avoid it, I don't even wantto look at the notices.
But after a point, procedurallythe IRS can enforce the
collection where they can.
You know, garnish your wages orany payments coming into your
account.
They can levy assets.
(20:53):
Typically they go for bankaccounts and you'll discover
that after the fact, whenthey've already done it, you
know you'll go to like, go inyour bank account and be like
where'd all my money go?
You know they'll send younotices of intent to levy, but
they won't tell you when they'regoing to levy.
So it's kind of a gamble there.
They can file tax liens and ifyou owe over a certain point
it's about it's either around 52or 62,000, with tax penalties
(21:17):
and interest due combined theycan suspend or seize your US
passport.
So they can literally strandyou in the US and make it so you
can't travel.
So that is a change that'shappened in the last 10 years.
It wasn't something they couldalways do, but that's a really
powerful enforcement tool theyhave now.
So you know, but if you getinto what's called a reasonable
(21:39):
collection alternative.
None of those things, minus taxliens, will happen as long as
you stay compliant.
So that's what a lot of peopledon't realize is the IRS is only
scary if you ignore them, likeif you do try to resolve it,
even if you can't pay it in full.
There are resolutions, you know.
So number one, most common thatpeople know about, is
installment agreements.
It's literally a payment plan.
(22:00):
You know you can pay dependingon how much you owe.
You don't have to submitfinancials sometimes.
Sometimes you do, and thensometimes they'll let you pay it
, even through the collectionstatute expiration date, because
the IRS, they only have 10years from the date of
assessment to collect the tax.
You know, absent there are sometolling events that can pause
(22:20):
that and extend it a little bit,but if they don't collect it
within that date then they haveto write it off.
So they do have the paymentplan options that will go
through the collection statuteexpiration date.
And then another really goodoption that you know is actually
pretty common in this industryis the offer and compromise
option.
There's four different types ofoffers.
(22:41):
One is doubt as to liability.
You're coming to the IRO saying, hey, I'm disputing that I
actually owe this.
Here's the proof.
I don't know it.
You're coming to the IRS saying, hey, I'm disputing that I
actually owe this.
Here's the proof.
I don't know it.
More commonly is the two doubtas to collectability and then
doubt as to collectability withspecial circumstances.
Doubt as to collectability issaying, hey, irs, I can't afford
to pay this without suffering afinancial hardship.
(23:02):
So you're just going, based onthe fact that it looks at your
income versus expenses and thetotal amount of equity, and
they're going to consider thingslike your ability to produce
future income if they enforcethe tax, your ability to produce
or provide for your health andwelfare, all of those things you
know.
And then, doubtless, tocollectability with special
(23:22):
circumstances.
It's similar, but it's saying,hey, I could pay this tax in
full, but it looks, or it lookslike I could pay this tax in
full, but I have specialcircumstances that it's going to
create me uh, create afinancial hardship for me if I
actually do so.
Let's say, you know you havesome serious medical conditions
or it's going to cause it, soyou have to shut your business
(23:45):
down and there goes your abilityto produce your income
completely.
You know so differentcircumstances like that.
And then the fourth one, whichis the least common it's less
than 2% of all offers submittedis based on effective tax
administration.
It's saying I could pay this infull, but I shouldn't have to
pay it because of some publicpolicy reason, and facilitating
collection of this tax liabilitywill undermine the public's
(24:09):
confidence in the tax system.
So very, very, very uncommonand very rare, you know, that
typically comes out when peoplehave been defrauded, something
really bad has happened to themand it would just kind of be a
wrong situation to collect fromthem.
You know, but that's why it'snot common at all, and you also
have to have the ability to payin the amount 100%.
(24:29):
So there's four different typesof options, you know.
So it's very unique to thetaxpayer situation.
The two most common in thisindustry, though, are doubt as
to collectability, and doubt asto collectability with special
circumstances, and then thethird route that people can take
, but it's only really for ifyour insolvent is currently not
collectible status.
It's where the IRS will giveyou a two-year hold where it
(24:53):
doesn't pause the collectionstatute but it does pause their
enforcement actions.
So they'll just send you annualreminders during those two
years, and then they'll onlyoffset your refunds during that
time, but they won't do anythingelse.
They're not going to levy youor anything like that, and then
it can be renewed.
But you know, it's kind of atemporary fix to a long term
issue.
So that really is only goodwhen businesses are truly
(25:16):
insolvent and have a foreseeablefuture of continuing to be
insolvent.
So those are the main.
You know ways to resolve issues.
Another thing I do want to touchon is penalty abatement.
A lot of people don't knowthere is the option to get
penalties abated through the IRS.
There are eight different typesof penalties that you can get
(25:36):
abated, including the failure topay, failure to file, failure
to deposit your payroll, yourFICA tax deposits and
underpayment of estimated taxliabilities.
So those are the most commonpenalties you'll see anyways,
and they can be abated under twodifferent programs.
One is reasonable cost penaltyabatement.
So you have to show that youtook all reasonable steps and
(25:59):
care and prudence butnonetheless were unable to
either file a return or to paythe taxes due for some
extenuating circumstances.
So let's say you got hit by ahurricane or you know you had a
spouse die or you had seriousmedical conditions or your house
burned down or something thatreally severely happened, and it
(26:19):
doesn't just have to be thosethings.
Those are more common, you know, but it can also be, you know,
reliance on bad tax advice isone that's a little harder, but
it is one of the options youknow, and that's not a complete
list.
I'm just giving some examples.
But you can do a writtenrequest and submit that to the
IRS.
It normally takes them about atleast six to nine months to
respond to that.
(26:39):
They are very slow.
And then the other option isfirst-time penalty abatement,
which is very little known bymost people.
But the IRS has like a one timeprogram where you can, as long
as you haven't had penalties inthe three prior years, you can,
and you don't have to have anyreasonableness.
You can say you know what?
I really wanted to buy a newcar last year so I didn't pay my
(27:00):
taxes, and they will still giveit to you as long as you
haven't accrued penalties inthose three prior years.
But first-time abatement, youcould just do that over the
phone and they'll just like doit on the spot.
But I don't ever recommendgetting penalty abatement until
the liability is about paid infull, because the penalties will
start to accrue again andthat's what a lot of people
don't realize.
So you do have to be verystrategic in your timing of
(27:22):
submitting for penalty abatement.
But those are the two programs.
Is first time abatement, youknow which I recommend, like
really think that out of whenyou want to use it because, like
I said, you don't have to havebeen reasonable Like you can
save it, for hopefully you neverhave a situation where you like
forgot to pay your taxes.
But if you did forget to payyour taxes, you know you could
just save it because that is notreasonable cause.
(27:44):
But yeah, that's those are someof the collection alternatives,
just in a nutshell.
Speaker 1 (27:50):
I love the fact that you deliver all of this news
with a smile on your face, likethe whole time you know here's
what I'm getting out of this.
As we start to kind of wrapthings up here, I think one
thing to me is becomingextremely clear is the idea of
having someone that's a taxpreparer, such as again, we
think about our accountants andthings like that is a much
(28:13):
different person than like we'retalking with you, someone that
can help you plan, make a planfor what's happening in your
company, a plan for taxes,because we don't wanna be in
these types of situations thatwe discuss.
We don't wanna get be in thesetypes of situations that we
discuss.
We don't want to get into thisnegative situation.
So, as we wrap up, I'm going toask you for I want to end on a
(28:35):
positive note with this Give metwo things that you would say.
Hey, listen, here's what Iwould advise when it comes to
just being proactive in the lifeof a business, a life of a
business owner.
That what would you say?
Proactively, let's stay on the,let's make our lives easy,
(28:56):
let's stay in the good course.
What are the two things thatyou would jump out to you?
Speaker 2 (29:01):
So you know I always recommend people meet with
whoever does their tax planningor get someone to do tax
planning.
You know, on either a quarterlyor semi-annual basis, of just
sitting down and being like allright, what are your profits
looking like this year?
You know we need a plan forlike.
Are you going to have a largeliability?
Is there anything we can do nowto reduce that?
You know whether that'spurchasing new equipment, which
(29:23):
is under section 179, which youcan immediately depreciate
things like that of bringingdown your liability.
Are you missing any tax credits?
The work opportunity tax credit, for example, commonly missed.
We didn't really talk about it.
I won't go into it too much,but that's one that's commonly
missed in this industry as well.
And just having these eitherquarterly or semi-annual
check-ins of what your businessplan is, what your profits are
(29:46):
looking like, where you want totake things, and then just
making sure you are on track tohave your taxes paid in full
before the time the return isactually due, because you don't
want to accrue any penaltiesbecause, as you know, I think
we've all learned they add upreally, really quick.
Speaker 1 (30:03):
So I was going to say you illustrated that very
clearly, but that's awesome.
I mean, this is what we need.
So, tina, this has been afantastic time with you,
obviously, a wealth ofinformation.
If someone is listening andthey wanted to connect with you
and dive in more into theirsituation and have some
(30:24):
questions that are specific tothem, what's the best way to to,
uh, to get in touch with you?
Speaker 2 (30:30):
Um, yeah, so they can go to our website or um send us
an email.
Speaker 1 (30:36):
So maybe, if you want , I can do like a quick screen,
share with it and then yeah,what we could do is uh, we can
put that in uh in the link inthe description.
So description.
So, we'll definitely do that.
So, like I said, if you want toconnect with Tina, we'll get
all of her information.
We'll put it in the descriptionand you'll have that.
And if you want to reach out,that's awesome.
Any last as we wrap everythingup today, any last thing you'd
(31:00):
like to share with the listener?
Speaker 2 (31:03):
No, no, I appreciate it and thank you for doing this
information share.
I just know spelling my lastname isn't always easy, but this
has been a pleasure.
I hope you guys learnedsomething and, yeah, I
appreciate your time as well,it's been awesome.
Speaker 1 (31:16):
I know it's been helpful to me and I'm sure it's
been helpful to everyone else.
So thank you, tina, and thankyou to everyone that listened in
.
We look forward to seeing youon our next podcast.
Until then, have a great day.
Speaker 3 (31:27):
Thanks again for listening to the Beauty Business
Strategies Podcast.
If you liked this episode, besure to hit follow To learn more
about how strategies can helpcreate more fun, profit and
growth potential for you, yourcompany and your team.
We invite you to schedule afree 60-minute strategy session
by clicking the direct link inthe description of this episode.
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