I’m a self-employed cosmetologist I filed taxes last year and had to pay back $2500 I’m on a payment plan right now and they told me once I file again it will void the payment plan. So, would starting my own LLC be a good idea right now?

Also I spoke to a few business owners that told me to just start the LLC now and I won’t have to file until next year is that true?

  • 1
    The LLC and your tax obligations have nothing to do with each other. If you want an LLC just get/make one, its as inconsequential as buying new shoes. The question might as well be "Would it be a good idea to buy new shows while you owe the IRS?" do you think the LLC would help you with something in particular? What is that thing and then maybe we can chime in on that? Because it has nothing to do with anything you owe.
    – CQM
    Mar 20 '19 at 20:03
  • "once I file again it will void the payment plan" <- I am very concerned about this part, as this is not something I can find any reference to the IRS ever doing. Payment plans are time-delimited, and they are not voided when you file taxes next. Please clarify why you think filing taxes would void the plan. For reference, official payment plans offered by the IRS: irs.gov/payments/payment-plans-installment-agreements
    – BrianH
    Mar 21 '19 at 1:19
  • I Called The IRS To Check If My Payments Were Going Through And The Person I Was talking To Said Yes And To Try And Pay It Off Before I File Again Because the payment plan will be voided
    – DRenaud
    Mar 21 '19 at 3:12
  • @BrianH+ this seems not just wrong but backward; one condition of eligibilty for an IA is that you are and remain in compliance except for the module(s) in the IA -- i.e. if you don't file a required return they can default the IA, although TIGTA 2006-30-011 indicates they do so 'systemically' (automatically) only if you fail to pay new taxes. Mar 22 '19 at 17:41
  • @DRenaud Where did you get the contact information from? Did you go directly to IRS.gov and get a phone number from that specific site? The statements you are reporting from them are so far from anything I've ever heard of that I'm very concerned you are not speaking to the real IRS, but a scammer.
    – BrianH
    Mar 22 '19 at 18:19

The IRS wants you to file taxes

This has me spooked, because lots of people pretend to be the IRS so they can scam you. They tend to use telephone or online as the first method of contact (IRS uses postal mail only). They also like to be paid in goofy ways like Western Union, iTunes gift card, or wire transfers to funny bank accounts.

Obviously, scammers don't want you interacting with the real IRS because they won't be able to fool you if the real IRS is telling you the truth.

IRS considers each tax year to be a separate thing. They want you to file your Form 1040 personal taxes for each year. (Or use an acceptable equivalent such as e-"file" with H&R Block, Turbotax, etc.). *

Your tax troubles surely apply to previous tax years. They definitely want you to file taxes this year!!!

IRS doesn't care about your single-member LLC

Right now, when you make money in your business, the IRS just considers that as personal income, and you are allowed to deduct the real costs of the business. You report it on your personal 1040.

OK, form an LLC where you are the only member (owner), and take the default tax treatment. What happens now? Absolutely nothing. You still report the business income and expenses on your personal 1040. The IRS doesn't care about the LLC, it calls it a "disregarded entity".

The IRS doesn't know about the LLC

The IRS doesn't have anything to do with LLCs. When you form an LLC, you are dealing with your own state. You pay the fees to the state etc.

The only thing you deal with the IRS on, when forming an LLC, is if you need an "EIN" or "Employer Identification Number". Which you will probably need if you want to open a bank account for the business, or seek credit for the business e.g. Getting net-30 terms with suppliers. Obviously if you ask for an EIN, the IRS will know you have it, but they won't care.

The IRS will like the LLC, in any case

If the dispute with the IRS is over how much money you actually made (i.e. If the IRS is accusing you of hiding cash income), then the IRS will approve of the LLC.

In a properly run business, you never "take money out of the till" for expenses. Every single raw dollar is deposited direct into the company bank account. Every single expense you pay is paid out of the company account. This acts like a journal, but it's kept by an independent third party: the bank. The expenses are much easier to prove because there's a debit card charge to Aveda, a check to OfficeMax, etc. etc.

Making it very easy for outsiders to audit your day by day business. Not just the IRS; imagine you dedided to sell your business and needed to prove your income to the buyer. There it is, in years of bank statements.

A journal is still better, and a journal that matches up everyday to the bank deposits, is rock solid proof that you are making a real effort to keep accurate books. If you had that, the IRS could not easily claim that you were hiding income.

* If you don't file, the IRS will try to figure out what you owe, i.e. "Do your taxes for you". This is provisional; you can override it by actually filing your taxes. IRS would still prefer you actually file. In your case in particular, "IRS doing your taxes" presumes all your income has been reported on W-2s or 1099 forms: As a self-employed cosmetologist, a lot of your income is cash and it's all on you to tally and report that. You should keep a contemporaneous (written down when it happens) journal of all your income, payment method and expenses. Some say "how would IRS know that I just got $50 cash? They can't know that, so I just won't log it! Haha!" And that blows up in their face.

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