News & Blog

By Daniel Wolfe

So you’ve already mailed this year’s tax return and are looking forward to using that large tax refund check to book a nice vacation this summer. You’re watching the mailbox every day with great expectations. Then, the bad news hits.

What you thought was a nice big check is instead a letter from the IRS that you’re being audited. Yes, you’re among the 1 percent they’ve chosen to investigate. Better put that trip on hold – for now.

What is an IRS audit?

An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.

The more money you make, the bigger the chance is that you’ll get audited. But mostly, the IRS is looking for certain “red flags” on your tax return. For example:

- You made $80,000, but donated $40,000 to charity

-  You wrote off 100% of your vehicle as a business expense

- Large losses appear on your return

- Data submitted to the IRS does not correspond or does not appear on the return you submitted

Regardless of the reason, many fear receiving that IRS audit letter. Will you have to pay back thousands of dollars in taxes? Will you have to pay interest and penalties? Will they audit your past tax returns? Are you going to jail?

Don’t panic. You can get through this by taking a few important steps:

Figure Out What the IRS Wants

A letter from the IRS doesn’t always mean you are being audited. Sometimes the agency is just looking for more information or clarification. You need to determine what part of your tax return is being audited – often, IRS auditors have questions on a portion of the return, not all of it.

Find Your Documentation

Now you know what the IRS is looking for. The next step is to build your case by collecting your documentation. Find as much information as you can.

If you haven’t kept much, you might need to reach out to third parties like your bank, financial planner, the charities you’ve donated to, etc., to see if they have anything in their records that could help you.

Get Professional Help

Don’t contact the IRS on your own, or ignore the letter.

You need professional help. To represent you before the IRS, a return preparer must be a CPA, attorney, or an enrolled agent, which refers to an individual who has passed a comprehensive IRS examination. Unless your preparer possesses one of these credentials, you'll need to find someone else to represent you.

If you’re looking for some guidance on how to respond to an IRS audit letter, call Dan at 330-385-2160 or email him at Dwolfe@bwlkcpa.com..

By Daniel Wolfe

The thought of receiving your tax refund check as fast as you can say “1040” sounds pretty enticing. The faster you get the cash, the sooner you can purchase that new smart TV or book this year’s trip to the beach.

This time of year, “tax shops” lure taxpayers with promises of “guaranteed maximum refunds,” $50 gift cards, and accurate results. All this, for the cheapest tax prep fees out there.

But, just like in life, you often get what you pay for. If something sounds too good to be true, it probably is. And, when it comes to messing with the IRS, you can’t afford to cut costs or corners just so you can walk out the tax shop door with a check in your hand.

In order to protect yourself, consider hiring a professional accountant to prepare your return. Certified Public Accountants (CPAs) specialize in business and personal tax preparation, along with other financial services.

Why Choose a CPA?

Here are 3 important reasons to choose a CPA over a tax shop this tax season:

1. Education. CPAs are highly educated. In order to be a CPA, you must have 150 credit hours of college education, equivalent to 5 years of college, have worked in the industry for at least 2 years and pass a very stringent exam (only about 25% of those taking the exam pass it for each time the exam is given). CPAs are required to have annual continuing education courses in order to maintain their licenses.

2. More than just taxes. Having a CPA prepare your tax return establishes a relationship with someone who will be your adviser on other financial matters. CPAs have comprehensive knowledge of financial affairs and can assist in dealings with the bank, mortgage company and business decisions.

3. Protect you against IRS. CPAs are one of three classes of professionals that can represent you in front of the IRS, should you or your business be audited. “Joe” at the tax shop will not be able to protect you against the IRS.

Dan Wolfe is a partner at Byler, Wolfe, Lutsch & Kampfer. He can be reached at 330.385.2160 or DWolfe@bwlkcpa.com.

By Daniel D. Wolfe

One of the classic comedy movies of the last 30 years, Vacation, is about to hit the screen again but this time it is the son of Clark Griswald, Rusty, who is taking his family to the mythical Wally World.

Most people found humor in the movie due to the old “been there done that” feeling. Making and preparing for a trip, as in the movie, includes detailed preparations, ups and downs and many unexpected moments.

Like a trip, financial planning is a life-long event that takes us from the early years of adulthood into retirement. While the ups and downs in the movie make us laugh, these same events in reality are not so funny if we are not prepared.

Here are four major elements of a roadmap for this journey called Life.

We are ready to go so what now?

Our family has made several trips to visit the Great Mouse in the South and the journey was easy to start because we began from home. But in the world of finance, most people do not know where home is or the starting point of the trip.

I have always recommended the preparation and maintenance of a personal financial statement. The first part of such a statement lists the things we own,  called our assets, and the value of those items. That would include bank accounts, investment accounts, real estate holdings, retirement accounts, personal autos, cash value of life insurance and anything else of financial value.

The next part of the statement is the listing of what we owe, or liabilities. These may include mortgages, auto loans, student loans, credit card balances and other debts.

The difference between these two items, assets and Lliabilities, is your net worth. It should be our intention to always keep that number positive.

This calculation gives us our starting point for the trip. While on our trip, we should compare the changes in our personal financial statement from time to time to see if our financial resources are increasing.

Do we have a vehicle that can take us where we want to go?

My wife always chuckles when we get ready for a trip. I change the oil, inspect the tires and belts and of course perform the official waxing.

I want to make sure our car can make it to our destination and keep us secure and comfortable along the way. We cannot achieve this without understanding and controlling our vehicle.

Financial planning presents us with the same issue and to help us we will need to prepare a budget. A budget details how we allocate our income to make sure we stay on the roads that will get us to our destination. Think of it a financial GPS.

Budgets can be sophisticated or simple, written in detail or summarized carefully. We all have a tendency to be surprised where our money is going upon examination, but we should not live with those surprises.

Our budget should detail our sources of income, at least monthly, and where our expenditures are going. We should always plan for normal living expenses and savings for anticipated needs.

You can find some simple budgets and many financial tools in our website’s Financial Tools section. Budgets are critical to any financial plan

Did we pay our AAA bill this year?

Flat tires, breakdowns, toll roads, bathroom breaks and other unexpected things can disruptour vacation.

When preparing a financial plan, we need to reduce our risk of encountering the unexpected, like an unplanned (but welcomed) baby, a lost job, a sudden sickness or worse.

Risk-reduction strategies like buying insurance, accumulating extra savings and so forth can inhibit our enjoyment of life. But inadequate risk mitigation can be catastrophic.

Part of our plan should be identifying our risk and determining the best way to protect ourselves while not spending everything we have to do so.

Hey! I forgot to ask, where are we going?

We know where we are starting and we have the roadmap, but where are we going?

In the late 1990s and most of the 2000s, I would jump on my motorcycle with my friend and our adult sons and take a 4-6 daytrip. Our trip plan would be as simple as “Let’s go South,” or “East”… you get the point.

It would be nice if life was so flowing, but it isn’t. We need to define where we are heading because it is not pleasant to accept an unplanned destination that is not in any way, shape or form what we had hoped for.

In planning for retirement, we need to understand what it’s going to take in the form of pension benefits, self-funded retirement plans, investments and Social Security to meet our anticipated cost of living.

Income and expenses are different during retirement. Where we have mortgage payments now, we will have potentially higher medical cost during retirement. Meanwhile, whereas our  current income may include annual pay raises, retirement will likely bring a fixed income. Moreover, the estimated return in our investments may not be what we had hoped for.

Our destination must be defined as much as possible and adjustments to our current living and adjustments to a different, more affordable destination may be required.

I hope and pray that each one of you plan well, live long and enjoy the trip.

Dan Wolfe is a partner at Byler, Wolfe, Lutsch & Kampfer. He can be reached at 330.385.2160 or DWolfe@bwlkcpa.com.