Tax time is behind us, and with that being said, we always learn a lot about what is really going on in the economy, how people are handling their finances, how the new tax laws effect the general public, and what people are thinking about their earnings, their spending, and their savings.  Seeing “the street” first hand always educates us …here’s what’s happening:

People are looking for new and creative ways to subsidize their earnings.  Home based businesses are on the rise…skills are being sold on the sly…and exchanging of services seems to be more common than ever.  Cash has become king…especially for those people collecting  “benefits” like unemployment, disability and social security…they’ll do just about anything for some extra  $$$ under the table that they believe comes their way tax free.

Bankruptcy has become the norm.  People are walking away from their credit card debt, their mortgages, their small business lines of credit,…all with their credit scores, or lack thereof,  being ignored.  It’s a live for today and don’t worry about tomorrow mentality…with no regard to financial  security or future ramifications

Foreclosures are still running ramped to the point now that it is affecting even those who are working, making a significant living, and can easily afford their house payment.  Now, it’s all about value and the  fact that their home is “under water ”(worth far less than they owe) so they have decided to hold off on paying on their commitments , waiting for the bank to make them a better offer.

Tax reporting is sluggish …many have not filed, lots have extended, and millions are not paying.  As a matter of fact, the number of payment arrangement requests are so high, the IRS is now using a computer generated program just for that purpose.  In addition, the audit process is on the rise to make sure that all the new credits…homebuyers, energy, education, sales tax …that everyone is taking advantage of are totally and completely “legit”.

The aftermath of last year’s recession has not been pretty and has affected millions of people …especially here in Michigan.  The recovery will be slow, sluggish and steady, so many will never recoup their losses.  For 2010/2011 the words of the day will be: “rent” (rather than buy), “borrow” (rather than own),”used” (rather than new).  What we have will be shared, what we buy will be necessary,  what we  waste will be minimal.  Money will definitely go green…whether we like it or not!

As we look around and see vacant buildings, empty parking lots, and for sale signs on every street,  you may think that now is the time to take advantage of the “real estate fire sale” and hope to make a killing in the next year or two.  You better think again.

From where I sit, I see a whole lot of scrambling going on.  Homes are under water, financial institutions are playing hard ball, apartment buildings are struggling, small businesses are walking away from their leases, and rent payments remain difficult to collect!  So, although there are definitely great real estate deals out there, you need to have staying power, and a lot of it, in order to turn any real estate investment into a cash bonanza any time soon.

Some of our clients have been talking about getting in to the landlord business …buying  foreclosures for investment, fixing them up and renting them out until the market picks up and they can be sold.  BUYER BEWARE!  It takes a lot of work, it takes a lot of money, and it takes a lot of patience to pull the rental real estate game off successfully.  And just in case you were wondering, flip sales have become almost impossible…so try not to go there.

Although the real estate investment picture is pretty bleak, there are some great opportunities for those looking to buy a personal residence…either for the first time or as a replacement  for one you currently own…thanks to new tax credit that just go extended to any binding contract made by April 30 and closed  by June 30, 2010.

If you are young, never owned a house before, and are collecting rent receipts every month …now is the time to look for that first house (or condo) you will qualify to get an $8,000 first homebuyer’s credit.

What is kind of special regarding this credit is that mortgage companies are allowing you to use it towards your down payment so it gives you immediate benefit.

For those who have owned a house before, and want to buy a new personal residence, there is $6,500 tax credit available to you… and a perfect reason to sell what you have and buy something larger for a growing family or smaller to prepare for retirement.

Caution is the word for the entire investment arena these days …and real estate is certainly no exception.  If you are thinking of buying something and need a professional ear, give us a call …no charge for asking!

2008 extension requests are over, tax time 2009 has not yet begun, there’s a short lull of work on their plate, so now Is the time that you may hear from the IRS.  But have no fear, most letters are just those general inquiries that are looking for a copy of your return, a small calculation change, or a request for    money due if you have not previously set up a payment arrangement.

Most IRS correspondence is computer generated and is sent as a result of a matching error …an expected tax return was not received, 1099 income is overlooked, estimates or payments reported are missing …and easily resolved with a quick phone call or short letter. 

If the letter is a “return request” …mail in another signed copy…somehow your first return was either never received or missed in keypunching…no big deal.

If the letter notifies you of a “calculation error or change” …check your information very closely…the IRS is usually wrong and a letter, providing the necessary documentation, does the trick.

If the letter “selects your return for examination” the IRS may request documentation of deductions taken on your return…which means you may mail in the information, or they may ask you to bring the information to their office so they have the opportunity to meet and interview you and, of course, examine the return a little closer.  Whichever the case, get all of your information together and immediately contact the professional who did your return and ask them review your situation.  If you did your return yourself, it may behoove you to go get a professional opinion before you contact the IRS yourself.

If the letter says “Urgent” …this is usually a request for payment and it is the not the first one you received.  RESPOND IMMEDIATELY BY TELEPHONE and request more time, a payment plan, or a detailed explanation.

What ever the case may be:

1.        RESPOND TO THE REQUEST …in this case, ignorance is not bliss and no good can come from it.

You are much better off handling the situation immediately and getting on with your tax life.

2.        DON’T ASSUME THAT YOUR RETURN IS WRONG…computers make mistakes…especially if your return is not straightforward.

3.       HAVE NO FEAR…as a taxpayer you have rights, so don’t let any intimidation tactics get to you.

4.        HIRE A PROFESSIONAL if you are expecting a face-to-face audit situation.  You will usually get more time, more cooperation, and a better all-around deal if you don’t represent yourself.

No matter what ,negotiation when it comes to tax and penalties, is certainly not out of the question depending upon your personal financial situation.  The government, probably more than any other creditor: is aware of the current economic situation, wants to help you solve your tax problem and willing to give you the time necessary to get there!