Taxes are an inevitable part of running a business, sometimes things can go wrong. When the IRS comes knocking, it’s better to be prepared. Shanyn has helped her clients and is here to share some tips with us today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Shanyn Stewart Background:
- Tax strategist and serial entrepreneur
- Has been helping clients with taxes for 22 years with her company Advanced Accounting
- Based in Lambertville, MI
- Say hi to her at https://advancedaccounting.com/
Sponsored by Stessa – Maximize tax deductions on your rental properties. Get your free tax guide from Stessa, the essential tool for rental property owners.
TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Shanyn Stewart. How are you doing, Shanyn?
Shanyn Stewart: I’m well, thank you.
Joe Fairless: I’m glad to hear it, and looking forward to our conversation. A little bit about Shanyn – she is a tax strategist and serial entrepreneur. She helps clients with their taxes, she’s been doing that for 22 years via her company, Advanced Accounting. Based in Lambertville, Michigan.
Today, Best Ever listeners, first off I hope you’re having a best ever weekend. Because today is Saturday, and obviously I record these episodes during the week, so I can make believe whatever day it is — because you’re listening to this on a Saturday, we are going to do Situation Saturday. The purpose of Situation Saturday is should you come across a similar situation that is presented during this conversation, well now you’ve got a roadmap for how to handle it… And here’s the situation – you have a battle that is brewing with the IRS. How do you prepare for that battle before they come knocking on your door? Shanyn is gonna talk us through that, so that we can best prepare ourselves for that, should that take place. But before we do that, Shanyn, do you wanna give the Best Ever listeners a little bit more about your background, just so we get to know you a little bit better?
Shanyn Stewart: Definitely. I actually started my career working for General Electric, and I was one of two advisors that worked from a financial and tax standpoint with the employees at GE. And like GE does, and like a lot of corporations do, they decided to no longer be in that business, and I had the opportunity to go into business for myself. That was a natural fit to actually open the full-service accounting and tax practice.
As our skills have grown, tax strategy has become our super-power. Unlike a lot of tax professionals that are very slow and are actually in the business of recording history, we actually take a very proactive stance to actually help our clients legally write the history of their company from a taxation standpoint. We’ve built a great team of experts out, and actually about 67% of all of our clientele live outside my geographical location… So we’ve become a very virtual and worldwide company.
Joe Fairless: What are a couple things that is typical for an accounting firm, and then what are a couple things that you do that goes above and beyond that? …just to give us some context.
Shanyn Stewart: Definitely. One of the things to remember when we’re talking about taxes is that it’s kind of a three-legged stool. We’ve got the compliance end of things, keeping you in compliance by making sure that you’re filing an accurate return on time, and then we have the financial side of things – making sure that you’re running optimally from a financial standpoint. Then there’s the tax planning side of things. So it’s completely different than what most traditional tax professionals do. And that’s not meant to throw them under the bus, because keeping you in compliance is a full-time job. So often times tax professionals have so much on their plate that the only thing they can focus on is being reactive.
So you come in at the end of the year with your shoebox full of documents and paperwork, and all they can do is record the history of what you’ve done for the year. That’s where we set apart from other firms, in that we actually take a proactive approach, where our clientele are meeting with us at least on a quarterly basis, and some of our clientele where we service as concierge CFOs, are actually meeting with us on a monthly basis… And we’re tracking metrics, we’re planning for increased growth or reduced revenue, strategically making sure that if we have asset sales that we’re handling them in the most tax-efficient way possible, before they actually even occur, so that we’re able to lay out a game plan to mitigate taxes legally for our clients.
Joe Fairless: And on a similar note, when we talk about how to prepare for battle with the IRS before they come knocking on our door, what’s the best way to start our conversation when we talk about that?
Shanyn Stewart: Well, I think one of the things that we need to realize is that accounting as usual won’t work anymore. I think one of the things that the public doesn’t really understand is that the IRS is actually deploying artificial intelligence in so many aspects of cutting down on tax evasion. So the old days of just haphazardly putting together our financial paperwork and our financial reporting that our tax professional then reports for us may not have all of the safety nets that need to be employed now.
So when we talk about artificial intelligence, it’s not taxes as usual either. We just went through the largest tax law change since the Regan administration, and just last week the IRS put out official regulation and revenue rulings on rental activities. So the game has changed from that standpoint. But when we’re talking about the good old days, as you might wanna call them, when we used to put our things together, the state and federal accounts were not actually connected electronically. So we could file a federal return and it never talked to the state. Well, now the state and the federal governments talk together, the system is not easily manipulated when taxpayers would do that previously – which is never advised, but it did happen… So all systems are now talking to each other, and we have electronic footprints that are trackable by the IRS.
I think one of the most startling things as I’ve uncovered this and talking to individuals is that there was a New York Time article that dated back into October 9th of 2015, that actually says the computer scientists wield artificial intelligence to battle tax evasion. And if you go to the IRS website, underneath their jobs that they have posted are postings for artificial intelligence analysts, that will apply artificial intelligence to solve IRS business problems.
Basically, the IRS is creating algorithms that are actually lining up with the tax returns that are being prepared, and if something looks like it’s out of alignment from previous algorithms, it’s going to create scrutiny on the IRS’s side for you. So it’s very important 1) that you’re working with a tax professional that understands the new IRS regulation, and understands how those regulations apply to you specifically in the real estate market, and then is utilizing those new regulations and guidelines to help maximize your deductions and mitigate your taxes from that standpoint. That’s one of the big things that we’re seeing – the IRS computers are smarter than they ever have been.
Joe Fairless: Yeah, and I’m good with them using artificial intelligence, because that leads me to believe they’ll be more efficient, therefore there will be less hours spent on it, so maybe it will cost the taxpayers less money, because they’re being more efficient since they have these algorithms. So in my mind, that doesn’t really change anything, it just makes them more precise… So what I’m taking away from that is if someone was trying to cut corners and get away with stuff, it will be harder for them to get away with it.
Shanyn Stewart: I don’t think most taxpayers are out to evade taxes. Here’s one of the things that I’ve seen start happening. Let’s say for instance you have an LLC and your rental properties sit inside that LLC. But you receive payments and you are 1099 for rent payments to those rental properties and it actually floats through your personal social security number… So the system knows that that social security number receives rent payments, but the rent payments may not actually have flown through a personal return; those rent payments may have flown through to a business return.
That will generate a letter that says “Whoops! Something is not lining up… What was issued to you and what you reported are not in alignment.” That creates stress and anxiety for the taxpayer. It’s a fixable situation, but those are the kind of things that we’re gonna start to see more of, and that’s why it’s really important to make sure that you have an accounting system and make sure that you actually have all of your tax ID numbers linked to the right LLC’s, linked to the right properties, and that things are being reported correctly from outside third-parties, as well.
Joe Fairless: That makes sense, and I appreciate you mentioning that. When someone receives a letter from the IRS and they say “We’re gonna audit you”, what do you have to make sure that you have prepared, and ideally what should you have done already so that you’re not having to scramble?
Shanyn Stewart: Right. So here’s the first thing, and this might sound kind of ridiculous when I say this, but this is the reality. When you get a notice from the IRS, you need to open it, because you have timeframes that you have to respond by… And often times, what happens when we see individuals come into our firm that have an IRS issue, it’s because they’ve ignored the situation.
So the first thing is when you get that notice, you need to open it up, you need to read it and you need to take it to a tax professional that has either prepared your documentation for you, or if you prepared your own, who has experience in what we call IRS resolution work. That’s the first thing, because the IRS is not gonna come and levy all of your assets and things of that nature — which they will do, but they give you time to make a reasonable effort to substantiate and to prove your side of the situation and to correct what may need to be corrected.
Often times, I would say that when you get an IRS letter, it is a situation that it’s just the reporting did not line up and it’s an easy fix from that standpoint. It’s when you ignore your 30-day, your 60-day, your 90-day letter and now they’re actually moving to levy or it’s going to tax court, that there becomes an issue. So immediately if you get a letter from the IRS you need to be very proactive, take the bull by the horns and get the ball rolling as far as getting it resolved. And then once you’ve gotten it to your tax professional, you need to make sure that they are following through on the deadlines, because these letters actually have deadlines.
So I’d always make sure that if you’ve hired a tax professional, that you’re asking them to provide you with the copies of all the correspondence and the return receipts. I’d ask them all of my letters and correspondence to the IRS. If it’s fax, I want the fax confirmation; if it’s actually mailed, hardcopy, I want the return receipt, a copy of that for my own records… Because it really falls back onto me; as the taxpayer, I’m the one who has to be in compliance. So making sure that your tax professional is answering things in a timely manner… But let me say this – these problems, when they start to rise, the IRS is very quick to send out these notices, but they’re not always quick to respond. And the letters are actually generated by an automatic system; a computer system spits out this boilerplate correspondence to you… So your tax professional may have responded already, and then here comes another notice. If you get another notice, you need to respond again. You wanna make sure that you’re never ignoring any type of correspondence that comes in.
Joe Fairless: Okay. The tracking of expenses throughout the year – can you just pay on a credit card and that be sufficient for tracking the expenses? Or if you’re paying on a credit card do you also have to take a picture of the receipt and then save it on your phone or somewhere else?
Shanyn Stewart: Well, I think that it’s always best to have more documentations than not. One of the things that taxpayers often do is they comingle their personal and their business expenses, which is never advisable. You really need to have a credit card that’s dedicated just to business or just to personal. If you’re co-mingling those expenses, then I would recommend that you also have the receipt to substantiate it… Because if you’re handing an IRS agent or revenue officer a copy of your bank statement that has co-mingled business and personal funds, or your credit card was co-mingled in business funds, then that opens up all of those transactions for scrutiny.
If we’re walking into a situation and let’s say they’re questioning repairs, and we walk in with the actual work order and all of the receipts that go with it, and then we can tie it back to a credit card, but we have the receipts in hand as well, it’s going to make the audit process easier.
Now, you don’t have to keep paper copies of these things. Like you said, you could snap pictures on — there’s lots of apps out there where you can snap a picture and keep it on your phone or on your Google Drive. As long as you can replicate those expenses, they’re going to be able to be substantiated.
Joe Fairless: Got it. Anything else as it relates to preparing for going back and forth with the IRS that we haven’t talked about, that you think is relevant for the listeners to know?
Shanyn Stewart: Yeah, I think one of the things to remember is that if you hire a tax professional to actually — it’s called “tax resolution” in our industry… So if you actually hire a tax professional to provide tax resolutions for you, they became your power of attorney and they become the front face to the IRS. So you actually have representation and you don’t have to go to battle on your own behalf to the IRS. You now have someone who stands in the gap.
So if you have representation, that tax professional should be handling everything for you. You should not be the one that has to go to speak to the IRS on the telephone, to reply to the letters… If you have a professional, you want to make sure that they’re standing in the gap in the entirety for you.
Joe Fairless: And if you search “IRS resolution work”, is that the best way — assuming you don’t know someone or you don’t listen to this interview, so they don’t know you… Which I guess that wouldn’t be possible, because if they do listen to this interview then they will know you… [laughs] But I’ll just ask the question anyway – “IRS resolution work”, is that a good Google search to find someone who can help you?
Shanyn Stewart: “IRS help, IRS relief”, all of those. So let me also say, there’s a lot of big organizations that are nation-wide. I would do your due diligence and interview a couple of different tax professionals before you choose somebody who’s nation-wide from that standpoint. Sometimes in this situation you wanna be able to see them face-to-face. We do a lot of our things over Zoom, you wanna sit down in their office… This is a hand-holding process, because anytime you’re questioned by the IRS or any taxing authority, it’s gonna create stress and anxiety in your life, it’s gonna create a little ripple in your life, and you need to know that you resonate with the person that you’re working with. Those are great keywords to search, from that standpoint, but I always recommend talking to a couple different professionals based on what they’re gonna do for you, what they think is gonna be reasonable, and what they’re gonna charge.
Joe Fairless: What questions should you ask?
Shanyn Stewart: I always love the question “Tell me what your super-power is.” Have they handled cases like yours previously? And because of privacy laws, we can’t share clients and things of that nature, but we can tell about situations… What do they believe the likely outcomes are going to be? You wanna know the good, the bad and the ugly, and then you also want to know what they think they possibly can do to mitigate penalties, to stop levies… What can they do, and what is the game plan?
Now, here’s the situation – most individuals are not going to open up their toolbox and solve your problem before you’ve retained them… But often times, within the retainer and the engagement letter, if they fail to work quickly or expedite the correspondence and things of that nature, you can walk away from those engagements.
So I think it’s just making sure that you are very confident in the person you’re choosing, that they’re gonna go to battle for you, and they’re gonna do what’s your best interest and under the legal guise of the law.
Joe Fairless: Very helpful with those questions that we should ask them. Thank you for that. What is the typical fee that is charged to have a firm work on your behalf to resolve it?
Shanyn Stewart: Well, it really depends on what’s going on. If you’re going into a full-blown audit, I’m thinking that a company is gonna take at least a $5,000 retainer and go from there. Most of these problems, if it’s escalated to the IRS situation… If it’s just responding to correspondence and you have proper accounting and you’re organized, then it’s probably gonna be $1,000 to $1,500. But if it actually is going to take meeting with revenue officers, compiling the case for you, often times these cases run about $5,000 and up.
Joe Fairless: And when a professional who’s working to resolve this on behalf of their client, when they meet with that client who has the issue, what are some of the questions that that resolution professional is gonna ask their prospective client?
Shanyn Stewart: First of all, that professional needs to know that you’ve been in compliance. If you’ve not been in compliance, they need to know why. They need to know the story or the deal behind the fact that you’re not in compliance. So even sometimes before we can start the resolution process, we have to get the taxpayer into compliance.
I’ll give you a real-life example that we just went through last year – we had a construction company come to us and they had failed to file their federal tax returns for three years, and they had withheld taxes from their employees and they failed to pay it to the IRS; they failed to remit the withholding from the payroll taxes to the IRS. They owed over $150,000. The IRS was moving to close the business, levy personal assets… I mean, this was very detrimental to this construction company. So when they came into the office, the first thing — we couldn’t take care of the fact that they did not pay their taxes, because we had to go back and do the work to get them in compliance first.
So that’s the first thing they’re gonna ask – are you in compliance? And then a good tax professional is gonna pull transcripts. They’re gonna actually have you sign powers of attorney and give them the permission to actually go to the IRS and see what they have on record for you, to pull your account records, so that they can see that you’ve been in compliance or not in compliance and see what the IRS actually has on record for you. So that’s kind of the first process. A lot of firms charge up to $1,500 just to pull those transcripts and do that research before they’ll give you a resolution outline.
So that’s the first thing – they’re gonna ask you “Are you in compliance?” If you are in compliance, you’re gonna want to take your last three years tax returns with you, and any backup that you have for those. So if it’s electronic format, you’re gonna want it accessible on a Google Drive or on a thumb drive, a USB drive, and then they’re gonna go through an interview process with you to see why this happened, if it’s an error on the IRS side or if it’s something that’s an error on the taxpayer’s side. Then they’ll be able to formulate their strategy.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing and get in touch with you?
Shanyn Stewart: The offer that I actually make to listeners is that they actually go to our website, which is advancedaccounting.com. In the right-hand corner there’s a link, and I offer a free consultation to actually talk about either a tax planning strategy, or a tax resolution. I’ll spend 30 minutes on the phone just talking to them about the questions and concerns that they have, with no obligation or anything of that nature; just to give them a value-add.
Joe Fairless: What a wonderful gift. Thank you for that, and thank you for sharing your knowledge and expertise with us today on how to prepare for an IRS audit, and perhaps how to avoid an IRS audit as well… And then when you do hire someone to help you through an IRS audit, the questions that you ask – ask about their experience, the cases they’ve handled previously that’s like yours, what the likely outcome will be for your case, what they think they can do to mitigate the penalties… Just overall what’s their approach for the game plan. Then you gave the projected costs based on a couple different scenarios.
Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Shanyn Stewart: Thank you.
