You Have Been Planning for Years to Live the Life of Leisure in Retirement - Only to Find Those Dreams Needlessly Dashed in a Microsecond
Another Sad Story of Taxpayer Not Engaging an Experienced Tax Professional
Background
You are a successful self-employed business person. You have done fairly well over your working years and now you wish to retire and live the life of luxury. There is one small problem that you need to address.
The Small Problem
You haven’t filed your income tax returns for several years. However, you are not overly concerned. You realize that this is something that you had to eventually do and are now ready to do so.
Handling the Small Problem
The first step is to have all of those prior tax years’ returns prepared by a tax professional. You take care of that, and then the IRS penalty and interest assessment notices flood your mailbox.
No problem you say. You have been putting money aside, invested well in the stock market and in real estate, and thus have the financial means to pay the assessed taxes, interest and penalties and even have funds left over to spend on yourself.
The Small Problem Turns Into a REAL BIG Problem
Let’s jump to the part where you apply for social security benefits.
The Social Security Administration informs you that although you may have worked for 20 years, you are only entitled to the three most recent years of earnings when your monthly retirement benefit is computed. Heck, those years weren’t even your best years as you slowly transitioned from working full-time to working part-time.
Has the SSA made a drastic mistake?
Unfortunately, it was you, not the SSA, that made a very drastic mistake.
The SSA Law
The Social Security Administration informs you that there's a time limit for reporting Social Security earnings and getting credits towards future Social Security benefits. The time period is 3 years, 3 months, and 15 days following the end of the calendar year in which you earn the income. As long as your Social Security earnings are reported within this time period, you'll get credit towards future Social Security benefits. If your earnings are not reported within this time period, you will not accumulate any Social Security credits for the unreported income.
The law pertaining to the claiming your Social Security credits are found in sections:
Sec. 1416 of the Social Security Handbook.What are the reporting requirements for self-employed people?
If you are self-employed and have net earnings of $400 or more in any taxable year, you must:
- Complete Form 1040 (U.S. Individual Income Tax Return) including Schedule C (Farmers use Schedule F instead of Schedule C);
- Complete Schedule SE (Computation of Social Security Self-Employment Tax); and
- Send the return and schedules to IRS with the balance of any self-employment tax that is due.
Sec. 1423.Time Limit for Correcting Earnings Records
What is the time limit for correcting earnings?
An earnings record can be corrected at any time up to three years, three months, and 15 days after the year in which the wages were paid or the self-employment income was derived. “Year” means “calendar year” for wages and “taxable year” for self-employment income. If the last day of that period falls on a Saturday, Sunday, legal holiday, or other non-work day for Federal employees set by statute or Executive Order, the period for correction is extended to the end of the next work day.
Sec. 1424 & 1425.Exceptions
After the time limit has passed, the earnings record can be corrected only as explained in these two sections. Don’t hold your breath wishing for a miracle, it is quite doubtful in the fact pattern discussed above that you qualify for any of the exceptions listed.
Tax Planning Tip #1
If you are a business person, run your business as a business. You should be devoting your time to growing and running your business. You should not be spending the time preparing your own tax returns. Hire an experienced tax professional to prepare your tax returns and assist you with securing your financial future.
Tax Planning Tip #2
Create an Account on the SSA Website where you can annually check your social security earnings record and view your projected retirement benefits.
For real estate professionals with IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at info@keysolutions.us.
Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliate member of the Suburban West Realtors® Association, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP).
He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 18 years.
Hisblogs http://www.taxexpertblog.com and http://www.stopmytaxproblems.com discuss pertinent tax and business issues.
By visiting our website you can learn about the 5 Secrets the IRS Doesn’t Share and order a FREE SPECIAL REPORT: Should You Represent Yourself or Hire a Tax Professional.
Keystone Financial Solutions, Inc. specializes in providing innovative tax planning, tax preparation, and solving IRS tax debt problems. The company’s web site is https://www.keysolutions.us and its telephone number is (610) 594-2601.
If you have any IRS tax debt issues or tax planning issues, feel free to contact me at (610) 594-2601 or by email at info@keysolutions.us.
Disclaimer: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information. Should you wish to engage our firm to represent you, please call us at (610) 594-2601.
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