~ 9 Minute Read
As an online micropreneur who shares his experiences with the public it can be easy to shine a bright light on the good things that happen and bury the challenges. Well not today my friends. Today I’m going to share with you one of the more WTF experiences of my business career.
The Taxman Cometh
It all started innocently enough with a task I do everyday, opening my mail. Some people (my wife) enjoy opening the mail. Me, I find it rather boring and redundant. But on this specific occasion there was a letter that gave me chills down my spine after seeing who it was from. A sender that has a reputation for making your life hell and can leave you wishing you’d never started a business in the first place. Oh yea, that sender. Mr. Taxman. The IRS.
I opened the letter hoping for something rather innocuous, like a reminder that certain taxes were due. But I had bad vibes, which happened to be well founded. Once the letter was opened I quickly learned that I would have some explaining to do, as the IRS claimed in their letter that I owed a monster bill of $23,000!
Holy Shit, What Do I Do Now?
My first inclination was to have a total freak out moment. Seriously, this can’t be happening to me! I try in earnest to pay my taxes on time and accurately. The second thought that came to mind is I need to call my Father-In-Law, who also happens to be an accountant. If you can find a good woman who happens to have an accountant father, marry her, I can’t recommend this enough. After we discussed the letter in greater detail my Father-In-Law was able to point me in the right direction on the types of proof we needed to show that the IRS was wrong.
After talking to my Father-In-Law I had to call the IRS directly to inform them that I’d received the letter and would be providing updated information to show that I did not owe the $23,000 they were claiming. I was on hold for about 15 minutes before a rather nice lady spoke to me. She wasn’t intimating or scary, in fact she was very nice and helped me with the process.
To understand why the IRS claimed I owed $23,000 we need to take a step back. My very first attempt at business was a venture called TheRaceDeal. TheRaceDeal.com was an online registration website that allowed for runners to sign up to local races in the area. I would collect the race fees (and a small processing fee as profit), and once a race met the $250 payment threshold, a check for the amount owed would be sent to the race director.
It turns out that in 2015 I forgot to include the deductions from the payments I made to the race directors. I was using a spreadsheet I created at the time to keep track of my income and expenses. I now use Quickbooks and highly recommend other business owners use them or similar software. It will save you many a headache in the long run.
Thankfully I was able to print copies from all the checks I had written to the race directors that year as proof that I had additional expenses which offset the claimed tax burden.
The Waiting Is The Hardest Part
One of the most difficult aspects of working with the IRS is the time it takes for them to respond to you. They are actually legally required to contact you within 45 days (I think), but this usually means they’ll send you a letter letting you know they haven’t gotten to your case yet. Nothing about this process is quick or efficient. Government at its finest!
The Final Verdict
After about three months of waiting, I finally received an updated bill from the IRS. The final tally for what I actually owed the IRS was….. (pretend there is a drum roll going on in your head)…. $900. Whew, I’ve never been more relieved to owe hundreds of dollars in my life.
I made the payment and things with the IRS have been pretty smooth ever since. That being said I’d learned some good life lessons from this experience that I’d like to pass on to you.
1. Use Tax Software!
The truth is that if I’d simply used Quickbooks in 2015 this issue would have likely been avoided. These tax software suites connect directly to your bank accounts so that when you have income or an expense they are automatically included in your transaction statements (including the checks I was writing to the race directors).
2. The IRS Is Scary, But Not THAT Scary
My experience with the IRS was altogether not horrible. Of course I’m no fan of the IRS, as they take a huge chunk of my money that my business makes and they do diddly squat to earn it. And I have a big issue with the whole guilty until proven innocent way of doing business.
But between the nice lady from the IRS and them adjusting what I owed appropriately after showing them proof I found the process rather straightforward, despite causing stress and being a pain in the ass.
The truth is the IRS is very understaffed, and the whole thing is based on the honor system. Sure they can find you, especially if you earn enough, but they must use their resources wisely.
Horror stories do happen, but they are rare. The bottom line is certain things are outside of your control and you must be willing to take on risk if you want to have success in business and in life.
3. Get A (Good) Accountant
What a must-have a quality accountant is to a business. Having my Father-In-Law there to help with the process was super helpful. He has been working with the IRS for several decades and knows how they operate. It was also nice to talk to someone who had experience with letters like the one I received and put it in perspective. This wasn’t the end of the world, and we’d figure it out. Pay the money and get a good accountant. You can thank me later.
4. There Are Ups And Downs
In my experience with owning my own business it usually works in this pattern. For months you’ll have a lot of down time and just going through the motions trying to find ways to grow your business. And then… boom! A figurative bomb explodes in your face and you go straight into crisis mode trying to clean up the mess. I’ve always come out on the other side, but it can feel hopeless at times. Realize that if owning your own business was easy everyone would do it. No matter if its the IRS or another problem, keep moving forward and remind yourself that this too will pass.
TheMicropreneur does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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