Before MFI Works:
Diane R. is a service-based business owner who is married and files her taxes jointly. Her service-based business was an LLC, but she was not legally allowed to have an LLC because she held a professional license. At the time, her company has been in business for five years and did not have a formal accounting system.
Her Tax Problem:
Because she had no formal accounting system, there was a lack of accuracy when filing tax returns. When the time came to file taxes she guessed on how much income she had made and how much she spent. Her returns were filed with round numbers and the IRS found an underreporting issue. Her 1099 incomes were not accounted for, which caused her to underreport $25,000 plus penalties. Not only did this bring up the isolated incident, but she opened up her business to being audited for the five years she had been in business. During that time, her tax preparer charged her $275 to do her taxes but did not provide any tax advice. The applicable tax law was never applied when filing her taxes, and as a result, she overpaid $16,000 in taxes over the last few years.
MFI Works Solution:
For help with her taxes, business, and 1099 IRS audit, Diane came to MFI Works. We started by changing her business entity from an LLC to an S Corporation, introduced a retirement plan, and looked at home office deductions. We streamlined her accounting system and got it up to date so that her deductions were bulletproof. We’re working on paying off the debt and the penalties from the 1099 IRS audit. While it may have initially seemed that she was saving money by only paying $275 for her annual tax preparation services, she ended up paying over $5,000 because the tax laws were not applied to her.
