Got an IRS Notice – Now What?

Open Manilla folder with a calculator, check book and pen on one side, and a stack of paper that says "Tax Withholding and Estimated Tax" on the other. A cup of coffee is placed above the folder on a dark background.
Photo by Kelly Sikkema on Unsplash

You’re flipping through the mail when you see it. An envelope with an IRS return address. OMG! What’s this about? Whether you set it aside for a while or rip it open immediately, you eventually see it – a Notice from the IRS with news that you may not want to hear.

Now what? Your IRS Notice will explain the reason they are contacting you and give you instructions on how to handle the issue. Sure, you might have made a mistake on your return, but you might just need to clarify some information. Let’s break this down into a little Q&A to simplify things. You’re already nervous about this, right?

Why was I notified by the IRS?

The IRS sends Notices to taxpayers who have a balance due, are due a larger or smaller refund than originally reported, their return has been changed or additional information is needed. Notices may also communicate the need to verify taxpayer identity or a delay in processing the return. Each Notice contains a lot of valuable information about the issue. Read it carefully.

How should I respond?

Typically, you only need to respond if you don’t agree with the information in the Notice, if the IRS requested additional information, or if you have a balance due. If the income or payment information the IRS has on file doesn’t match the information you reported on your tax return, check your return to see if you made a mistake. It happens. Just pay the amount due, or at least as much as you can.

What if I don’t agree?

Yes, sometimes the IRS makes a mistake or does not understand the information from your filed tax return. If that’s the case, make copies of any schedules or other documentation that clarifies your situation. Complete the Notice Response Form and include any explanation to help the IRS understand what you are sending. Don’t assume that the IRS will be able to interpret your documents without a brief explanation.

When should I respond?

IRS Notices generally require you to respond by a specific date. There are two main reasons you’ll want to meet that deadline – to minimize the accrual of additional interest and penalty charges, and to preserve your appeal rights if you don’t agree. Keep copies of all Notices and your response (with support documents) in your tax records, in case you need to refer to them later.

Getting an IRS Notice is nerve-wracking, but ignoring it will only make it worse. Read the Notice carefully and respond with an explanation by the due date if you don’t agree. Made a mistake? Pay the amount due, or as much as you can, to reduce additional interest and penalties. When you know what to do, getting an envelope with an IRS return address won’t make your heart skip a beat.

Cybersecurity Depends on Your People

In spite of investing tons of money on security, organizations still fall victim to data breaches. Why? Because security doesn’t work if people don’t use systems securely. Click on a link in the wrong e-mail and all of that security investment goes out the window. Recent news events and surveys of IT security professionals reveal that the biggest cybersecurity risk comes from people. Your systems are only as safe as the security knowledge of your least knowledgeable worker.

As a tax professional, I have a figurative Bull’s Eye on my back, especially when it comes to phishing e-mails and other hacking attempts. But I’m not “special”. Phishing e-mails are among the most popular mechanisms for hackers to lure you or your workers to unknowingly expose your systems to attack. Phishing attacks are used to obtain bank account information, wire instructions, system logon credentials and personal identifying information.

Systems can also be at risk from actions, or lack of action, on the part of systems users with administrative privileges. A prime example is when a System Administrator fails to change the manufacturer’s default password to a unique password. A door to that system is easy to open if a hacker knows or guesses the default password, leading to unauthorized access and vulnerable data. Make sure your business follows best practices to change default passwords upon installing or updating applications.

Training and periodic reminders are essential to enhance awareness and keep workers on their toes. Traditional training, like webinars and documentation, make people aware of cyber threats and vulnerabilities. Use real life examples from the news to illustrate risks that workers should look out for. A few scary, true stories about accessing and stealing sensitive data will open their eyes. It’s a great way to help your workers recognize when they are the target of phishing or another scam.

Organizations can be vulnerable to hackers in spite of large investments in security. Your systems are only as safe as the knowledge of your least knowledgeable worker. News events and industry surveys reveal that people present the greatest cybersecurity risk. Organizations can mitigate the people risk with training, periodic reminders and by following best practices to change manufacturers’ default passwords. 

Five Years in Business and Going Strong

Hard to believe that it’s been five years since I quit my job and expanded my side-hustle into a full-time business. The time has passed quickly. With some diligence and good luck, I’ve been able to achieve my goals so far. Anniversaries are cause for celebration and reflection — a good time to assess progress, revel in accomplishments and set new goals. Also time to reflect on what it took to get here. 

Businesses that want to celebrate many anniversaries and accomplishments have some common attributes. These include investing a lot of time and effort on these four important activities:

Making a Plan 

A business plan is a road map to get where you want to go and help to keep your “Eye on The Prize”. Unless you know what you’re reaching for, you can’t grab it. Set your overall objectives and describe the detailed steps to achieve them. Set interim milestones along the way to help measure your progress and see when adjustments are needed.

Executing Your Plan

Actively work through the detailed steps in your plan. It’s exhilarating to achieve goals and move forward. Executing your plans also gives you opportunities to get more information. Use new information to adapt your plan and make course corrections. Also listen to how your network receives your message and adjust your wording to get your message across better.

Outsourcing for Expertise

Be realistic about aspects of your business where you do not have the necessary expertise or it would take too much time away from your core business to do it yourself. Legal, accounting, and social media are some areas where finding vetted help is essential to get things done correctly and free up your time to work with your clients.

Giving to Your Network

Answering general questions in your area of expertise and presenting at workshops gives to your network and establishes your credibility. Sharing tips and perspective helps to establish your brand and draw people to you and your business. Being generous is often its own reward, over the long run.

The last five years of being in business full-time have been hard work, fun, and rewarding – all at the same time. It takes a lot more than investing in these four activities to be successful. But businesses that invest in planning, executing, outsourcing where appropriate, and giving back develop a strong foundation for many anniversaries and accomplishments to come.

Tackling Finances in Your Business Plan

More than half of the new businesses that start this year won’t be around in two years. They will be out of business. A big reason for that sobering statistic is under-funding, starting with financial projections in the business plan. Projecting the financial needs for a new business is not the time for being overly optimistic or taking wild guesses.

So how do you tackle the financial section of your business plan? By applying three assumptions:

Revenue Targets Take Time to Achieve

Even with a huge demand for your business in your market, achieving projected revenues will take time. Ramping up and making contacts does not happen overnight. Top potential revenue will not happen in the first year. Developing one to five-year projections will illustrate revenue growth revenue and when expenses are expected to be covered. Showing when you will be profitable heads off questions before they are asked.

Expenses Will Be More Than You Think

Research costs for labor, materials, space, transportation, equipment, etc., based on market rates and required quality. Worker costs should include the employer portion of payroll taxes (i.e., 0.0765%), benefits, licenses, training. Don’t forget back-office infrastructure, like payroll services, billing, financial management and reporting, tax preparation. Marketing could be expensive, depending on location and industry.

You’ll Need a Funding Cushion

Failure from under-estimating costs and over-estimating revenue can be avoided by building in a financial cushion. Initial funding needs should include an amount equal to six months or more of estimated expenses to cover payroll and overhead in the months when revenue is not enough to cover it. Of course, that’s on top of funding for equipment, legal fees and other start-up costs.

Tackling the finances in your business plan is not easy. Don’t take the easy way out by guessing or painting a rosy picture that probably won’t come true. Avoid being one of the new businesses that fails within two years by applying these three assumptions about revenue, expenses and funding.

Your Child’s Financial Future

It’s never too early to think about your child’s goals for financial security and education. That little one will grow up and be ready to apply for college and begin a career before you know it. So how do you give your child a jump-start on financial security? New and previously-existing tax rules include provisions that can help. 

One or more of these six tax provisions could be part of achieving your child’s goals for financial security and education:

  • “Kiddie Tax” – The “kiddie tax” generally applies to unearned income of children under the age of 19 (or under age 24 for full-time students). Before 2018, unearned income was generally taxed at the parents’ tax rate. Under the 2017 Tax Cuts and Jobs Act (TCJA), children’s unearned income is taxed using the lower tax brackets used for estates and trusts.
  • IRAs for Teens – IRAs are perfect for teenagers with earned income because they will have many years to let their accounts grow tax-deferred or tax-free. Choosing a Roth IRA typically provides a better long term advantage for teenagers, who are not likely to derive a tax benefit from a traditional IRA due to their typically low income level. 
  • 529 Plans – Section 529 plans provide valuable tax-advantage savings opportunities for students. Contributions are not tax deductible for federal purposes, but growth is tax-deferred and distributions are tax-free if used for qualified education expenses. Under the TCJA, 529 plans can be used for K-12 tuition and qualified fees, up to $10,000 per year.
  • Coverdell Education Savings Accounts – Like the 529 plans, contributions are not tax deductible for federal purposes, assets grow tax-deferred and distributions used to pay qualified education expenses are tax-free. Coverdell plans can be used for K-12 expenses for tuition, fees and other qualified expenses. Unlike 529 plans, Coverdell plan contributions are subject to income limitations.
  • Achieving a Better Life Experience (ABLE) Accounts – ABLE accounts offer a tax-advantaged way to fund qualified disability expenses for a beneficiary who became disabled or blind before age 26. Under the TCJA, 529 education plan funds can be rolled over to an ABLE account without penalty. The rolled-over amounts count toward the overall ABLE account annual contribution limit, which is $15,000 for 2019.
  • American Opportunity Credit (AOC) – The maximum credit per student is $2,500 per year for the first four years of postsecondary education, subject to income limitations. Both the AOTC and a distribution from either a 529 or Coverdell plan can be taken in the same year as long as the same qualified education expenses are used for both.

Get a jump-start on achieving your child’s goals for financial security and education with one or more of these six provisions in the 2017 TCJA and previously-existing tax rules. The time for filling out college applications is closer than you think.

Tax Professionals Go to Summer Camp, Too

Last week, I joined 2,300 other tax professionals at what I lovingly call Summer Tax Camp. Okay, it’s not really “camp”. It’s the IRS Tax Forum, three days of tax updates and training on more than a dozen topics. All of us “campers” learned about tax regulation updates and issues from IRS representatives and experienced tax professionals. 

All tax professionals need to keep up with the latest income tax changes and new requirements, but not all of them can get to an IRS Tax Forum. Somehow, they need to make sure that they have the skills, education, and expertise to file complete and accurate income tax returns on behalf of their clients. 

Knowing that your tax professional actually knows what she or he is doing is important for many reasons, starting with the fact that taxpayers are responsible for all the information on their income tax return, no matter who prepared it. How can you feel confident that you’re in good hands?

Follow these five tips to select a qualified tax professional who keeps up with tax law changes, either by attending Summer Tax Camp or some other method:

  • Ask about professional credentials recognized by the IRS, such as a CPA or Enrolled Agent. The IRS maintains a Directory of Federal Return Preparers with their credentials and qualifications at
  • Verify that the preparer has a Preparer Tax Identification Number (PTIN) and enters it on your return that is electronically filed with the IRS. Tax returns prepared by a tax professional for a fee are required to be filed electronically.
  • Inquire about the tax professional’s education and training, and how she or he keeps up with tax law changes and IRS processes. Understanding IRS processes is just as important as knowing how to apply the tax rules. 
  • Ask about service fees and get a cost estimate in writing. Steer clear of tax preparers who base fees on a percentage of the refund, or who want their fee paid by direct deposit from your refund. These are unethical practices prohibited by IRS regulations.
  • Make sure the tax professional is available all year, after tax season is over, in case you need her or him. For example, notices can come from tax agencies any time of the year. Tax projections sometimes need refreshing before estimated tax payments are due again. 

Getting dependable tax preparation services starts with selecting a qualified tax professional who keeps up with tax law changes and issues. Whether the tax professional went to Summer Tax Camp or not, following my five tips will get you qualified tax help. Need more? The IRS has it for you at

More Competition for Donations under New Tax Law

The nonprofit community has been holding its collective breath since many taxpayers lost their deduction for charitable contributions under the 2017 Tax Cuts and Jobs Act. In the months after the tax act passed, experts in tax and philanthropy speculated about its impact on overall charitable giving. The first clue came after filing season for 2018 tax returns, the first returns filed under the new law.

Based on 2018 returns filed so far, overall charitable donations were down 2% in 2018 compared to 2017, according to the Giving USA Foundation. Sure, 2% doesn’t sound like much, but it means that the pool of donated dollars got smaller, creating more competition for available donations.

More competition for donations means that nonprofits have to make the most of all the ways that they tell their story – their annual report, website and financial statements (yes, the financial statements). Here’s how:

Annual Report

The hallmark of nonprofit story telling is the annual report. Headline with the impact of the organization’s programs and services on its community and clients. Place a dollar value on specific services and equate them to specified donation levels, helping donors understand the power of their gifts. Include high-level financial information with graphs. Don’t have a big printing budget? Many nonprofits only issue an electronic annual report.


A website could contain materials found in an annual report, but why do that when you can include a link to each year’s annual report, audited financial statements, and other details for donors who want more. Since websites can be refreshed frequently, it’s fairly easy to post upcoming events, features on volunteers and clients, and recent accomplishments. Toot your horn loudly! 

Financial Statements/IRS Form 990

Don’t underestimate the power of numbers. Financial statements tell donors about the sources and uses of funds and the organization’s financial health. Notes that accompany the financial statements help donors understand the numbers. The IRS Form 990 has a narrative section to describe programs and their community impact. Don’t scrimp on the narrative section, especially since it’s a public document that could be read by anyone. 

A 2% reduction in overall charitable donations because of the 2017 Tax Cuts and Jobs Act is bad news for nonprofits. More competition for a smaller pool of available donations means that telling nonprofit stories in annual reports, websites and financial statements is more important than ever.

Disaster Charity Scams on IRS 2019 “DIRTY DOZEN”

Floods, tornadoes, wildfires. Disasters are in the news every week, impacting many lives. Charities that serve disaster victims, like the American Red Cross, help with food, shelter and other emergency needs. Legitimate charities use donations to fund those emergency services when they are needed.

Unfortunately, fraudulent charities are out there after every disaster event scamming generous donors. They solicit donations that will never be used to serve anyone other than the fraudsters. The IRS is very interested in stopping fraudulent charities. So interested, charity scams have been on its “DIRTY DOZEN” tax scam list every year for a long time.

Follow these four tips to make sure that the charity asking for your donation is legitimate:

  • Verify, Then Trust – Be wary of charities with names that are similar to a familiar or nationally-known organization. Some phony charities use names or websites that sound or look like a respected, legitimate organization. has a search feature, Tax Exempt Organization Search that allows donors to find legitimate charities. Check it before you give.
  • Watch for Bogus Solicitations – A long-standing scam that occurs after major disasters is to impersonate charities to get money or private information from well-intentioned donor/taxpayers. Scam artists use a variety of tactics, such as contacting people by e-mail or phone solicitations, or even going door-to-door. Treat e-mail solicitations with extra care because they could contain malware, on top of taking your money.

  • Keep Information Confidential – Scam artists may ask for you to provide your Social Security number or passwords that can be used to steal your identity and money. It’s quite common to make legitimate donations using credit cards, but it’s essential to make sure you know who you are speaking with before giving out your information. Did they call you? Confirm the organization and call them back, or make the donation online.
  • No Cash – Ever – For security and tax record purposes, contribute by check or credit card. Those methods provide documentation of the donation. They could also provide some recourse if you have questions or concerns later. Besides, who carries cash anymore? Charities are supposed to provide a contemporaneous acknowledgement after each donation. Keep a record of all donations just in case.

Fraudsters can use disasters as a cover to steal donations intended for legitimate charities that help disaster victims. Following these four tips can prevent your donation from going to a phony charity or avoid giving confidential financial information to an identify thief.