Happy Winter, Clients and Friends!

We hope you had a chance to make some warm memories over the recent holiday season with family and friends. If Punxsutawney Phil is correct in his most recent prediction, we may need whatever warmth we can muster over the next few weeks. It appears that Mother Nature isn’t holding back either, delivering record-setting snow and ice storms this winter from the Sierra Nevada’s to the deep South and New England.

Yet Mother Nature isn’t the only one upping their game. The U.S. economy also outperformed expectations in the fourth quarter as gross domestic product (GDP) grew at a 6.9% annualized rate according to the initial Bureau of Economic Analysis’ estimate, clearing the Bloomberg consensus forecast of 5.5% by a healthy margin. The pace picked up nicely from the 2.3% growth rate in the third quarter plagued by the Delta variant. The economic recovery has continued even as the battle against COVID-19 and its variants continues. Strong earnings were an important driver of 2021’s strong stock market performance. Going forward, companies’ ability to successfully absorb higher input costs and pass them onto their consumers will play an important role in future earnings results and the equity markets amid persistent supply chain challenges.

Inflation, which we continue to watch closely, is proving stickier than many anticipated and the Federal reserve’s (Fed’s) hawkish view affirms this. As interest rates have increased given the Fed’s sentiment, equity valuations were discounted in January, sending prices lower. Moreover, fourth quarter earnings growth prospects have picked up after a mixed start to the reporting season, which could be a positive for equities moving forward. We expect inflation should begin to stabilize once the economy completes its reopening, when supply chains are fully operational, and labor shortages ease. Of course, the mitigation of COVID-19 variants worldwide and containment of the Omicron variant will continue to be critical factors in determining the economy’s trajectory for 2022.¹

For more on our thoughts on the economy, be sure to check out our Market & Economic Update. We’ve also included a brief “year in review” to bring you up to date on PFS happenings over the past year, as well as recent news about your PFS team and resources. Be sure to browse through all the news and links provided below.

What's In It for You?

At-a-glance guide to your 1st Quarter 2022 Frank Talk newsletter:

• 2021 Highlights
• 2022 News & Events
  • Awards & Recognition
  • Tax Planning Resources
  • Complimentary Second Opinion Service
  • Visit Our Getting Frank Blog and Join Us on Social Media
• Market & Economic Update

2021 Highlights

Awards & Recognitions

Below, we’ve highlighted some of the awards and recognition our firm received from a wide range of professional and community organizations.

• Frank Fantozzi, CPA, MST, PFS, CDFA, AIF^®, CEPA was recognized among Ohio’s Best-In-State Wealth Advisors for the fourth consecutive year in the annual list published by Forbes.²

• Planned Financial Services (PFS) was named a Weatherhead 100 Upstart company for the ninth time by the Weatherhead School of Management, Case Western Reserve University.³

• Frank Fantozzi was elected by the Board of Directors of the Cleveland Clinic Regional Hospitals to serve as a member of the Board of Trustees of Marymount Hospital, Inc., which owns and operates Marymount Hospital.⁴
  

• The Centre for Fiduciary Excellence (CEFEX), a division of Broadridge Fi360 Solutions, renewed 401(k) Prosperity’s certification to the standard described in the handbook “Prudent Practices^® for Investment Advisors.” 401(k) Prosperity is the corporate retirement plan division of Planned Financial Services and is part of an elite group of Investment Advisors to successfully complete the global independent certification process. 401(k) Prosperity’s certification is registered and can be viewed at cefex.org.

• Planned Financial Services was listed among the largest “Investment Advisers” in Cleveland in Crain’s Cleveland Business 2021 Book of Lists. The Book of Lists is a one-stop resource containing exclusive data and contacts for companies and organizations in Northeast Ohio.

2022 News & Events

Frank Fantozzi Obtains Advanced Business Exit Planning Certification
In January, Frank Fantozzi received his Certified Exit Planning Advisor (CEPA) credential from the Exit Planning Institute. The certification enhances a professional advisors’ ability to assist business owners through the process of Exit Planning (the Value Acceleration Methodology), so owners can build more valuable companies, have stronger personal financial plans, and align their personal goals with their financial assets.

Cynthia Yang and Amy Valentine Recognized as Forbes Best-In-State Women Wealth Advisors for 2022
Wealth Advisors Cynthia Yang, CFA^®, (CAIA^®), (CIPM) and Amy Valentine, CFP^®, CFA^® were recognized in this year’s list of Forbes Best-In-State Women Wealth Advisors. The special report identifies U.S.-based female financial advisors who are leading the way in offering best practices and providing high-quality experiences for their clients, according to Forbes. The annual list is compiled by Forbes with insights from SHOOK Research.⁵

Cynthia Yang Celebrates 10 Years at PFS
Planned Financial Services congratulates Wealth Advisor, Cynthia Yang, CFA^®, (CAIA^®), (CIPM),  on her 10-year anniversary as an integral member of the PFS team and leader among her peers. Cynthia’s accomplishments and contributions to our team have been both numerous and impressive. Over the past ten years she has continually focused on increasing the value she adds to the team and its clients through her focus on continuing education and professional growth.

Cynthia is a Chartered Financial Analyst (CFA^®) and Chartered Alternative Investment Analyst (CAIA^®) and holds a Certificate in Investment Performance Management (CIPM). She joined Planned Financial Services in 2012 as a wealth advisor where she brings deep knowledge, insight, and expertise in equity valuation, independent investment research, risk management, and portfolio performance attribution analysis to our team and our clients. She leads the PFS Investment Committee where she is responsible for conducting investment due diligence research and constructing, reviewing and adjusting our PFS Strategic Portfolios on a regular and timely basis. She was named among the Best-In-State Women Wealth Advisors by Forbes in 2022,⁵ and recognized as a “Top Next Generation Wealth Advisor” in 2017 and 2019.⁶

Amy Valentine Elected Board Vice President for Asian Services in Action (ASIA)
In January 2022, Wealth Advisor Amy Valentine, CFP^®, CFA^®,  was elected Board Vice President for Asian Services in Action (ASIA). Amy has been a member of the board since June 2021, serving on the Financial Committee. ASIA is the largest health and human services agency serving the Asian American/Pacific Islander (AAPI) community of Northeast Ohio. The nonprofit organization runs two federally qualified health centers located in Cleveland and Akron, which specialize in linguistically and culturally competent care for immigrants and refugees. ASIA also provides all of the wraparound social services for the AAPI community to thrive in Northeast Ohio.

New! Get Your 2022 Tax Checklist
In January, we introduced our new 2022 Quick Tax Reference Guide. This handy at-a-glance guide makes it easy to quickly find the information you need from federal income tax brackets and rates to capital gains and qualified dividend rates, contribution limits for retirement plan and health savings account (HSA) contributions, annual gift and estate tax exclusion amounts, limits for charitable deductions, and more. Feel free to download it, print it out or save it to your device to access throughout the year: 2022 Quick Tax Reference Guide.

2021-2022 Tax Planning Guide
Looking for more comprehensive tax information? The Planned Financial Services 2021 – 2022 Tax Planning Guide provides an overview of key tax provisions and deadlines you need to be aware of to reap the full benefits of collaboration with your qualified tax advisor. Click here to view or download your PFS 2021 - 2022 Tax Planning Guide now. 

Complimentary Second Opinion Service: Introduce Your Family, Friends and Business Associates
Our complimentary Second Opinion Service continues to be well-received among the friends, family members and colleagues of our clients and associates. This valuable service provides the people you care about with an opportunity to benefit from the same expertise and guidance that you have come to expect as a valued client of Planned Financial Services.

In many cases, a second opinion will simply provide confirmation, and the confidence that those you care about are on track to fulfill their values and achieve their goals with their current financial provider or strategy. However, if needed, we are happy to suggest ways in which we can help, including recommending another provider if we are not a good fit for their needs. Either way, following a Discovery Meeting and Investment Plan Meeting with our experienced team, they will receive a Total Client Profile and a Personalized Financial Assessment of their current situation.

Click here to learn more about the Planned Financial Services Second Opinion Service, and to download a full description of this service and the benefits it offers to the people you care about most.

Don’t Miss Out On the Topics That Are Important to You: Visit Our Getting Frank Blog
For timely information on the financial planning, business growth and investment topics that are meaningful to you, visit our Getting Frank Blog at PlannedFinancial.com. We post new articles and opinions weekly, so be sure to visit us. You can also read the latest blog articles by connecting with me personally on social media: LinkedIn, Twitter and Facebook.

Market & Economic Update

How soon are rate hikes coming?

With inflationary pressures running higher than many central bankers are comfortable with, calls for interest rate hikes have become louder. A number of important central bank meetings are set to take place in March including the Federal Reserve, European Central Bank, Bank of Canada, Bank of England, and the Reserve Bank of Australia, to name a few. As such, March could be an important month for monetary policy shifts.  

The COVID-19 pandemic was an unprecedented shock across the global economy. But the economic damage was met with an extraordinary global monetary response with central banks cutting rates to near zero levels and expanding balance sheets by nearly $10 trillion to provide additional levels of monetary accommodation. Moreover, governments around the world provided fiscal support and, on average, annual spending increased by 7% of gross domestic product (Bloomberg). As economies have recovered and the impact of COVID-19 fades, these extraordinary levels of monetary accommodation are no longer necessary, and thus we’re likely to see the active removal of monetary support. While these extraordinary fiscal and monetary measures certainly helped stave off broader economic weakness, these tailwinds are likely to become marginal headwinds to the global economy in the upcoming years. 

Additionally, a confluence of events has raised inflationary pressures to the highest in several decades. Direct fiscal stimulus gave discretionary funds to consumers, which instantaneously boosted demand, especially for consumer goods as most people were spending much less on services during the pandemic. The quick rebound in consumer goods spending put stress on the logistics and transportation sectors, crimping supply and thereby creating an upward spiral on prices. Moreover, due to continued price pressures (as defined by each respective country’s Consumer Price Index) that remain above central bank targets, global central banks began wrestling with the conundrum of a fragile economy coupled with rising prices.

With inflationary pressures running higher than most central bankers are comfortable with, calls for interest rate hikes have become louder. A number of important central bank meetings are set to take place in March, including the Federal Reserve (Fed), European Central Bank (ECB), Bank of Canada (BOC), Bank of England (BOE), and the Reserve Bank of Australia (RBA). As such, March could be an important month for monetary policy shifts. And while many central banks have stopped providing forward guidance on an actual plan to raise short-term interest rates, markets have already priced in a number of interest rate hikes over the next 12 months.

Market expectations for rate hikes are broadly expected and include fairly significant rate hiking campaigns for the BOC, BOE, and the Fed over the next year. Markets expect these central banks to increase interest rates five to seven times over the course of a year, which seems fairly aggressive to us. Moreover, markets are expecting somewhat divergent policy rate paths after the second year of rate hikes. Specifically, markets are expecting the U.K. and U.S. to cut interest rates in 2024. Interest rate cuts tend to happen around broad market stresses or while at the precipice of a recession. It should be noted that these market-implied expectations are volatile, and expectations can and do change over time. 

Our view remains that interest rate hikes for the U.S. will likely begin in March with a 25 basis point (0.25%) hike and then three to four more rate hikes at subsequent meetings in 2022. Moreover, we think the Fed will start to reduce its nearly $9 trillion balance sheet in the second half of 2022. There is a risk to the upside (in hikes) depending on the trajectory of inflationary pressures. If consumer price pressures moderate over the course of the year, as we and the Fed expect, then we think the Fed and other central bankers can take a more moderate approach to interest rate hikes. However, if inflationary pressures remain stubbornly high and, importantly, we start to see longer-term inflation expectations become unanchored, central bankers may be forced to move more aggressively than what is already priced in.

That said, given the current conflict in the Ukraine, there remains considerable near-term uncertainty with central bank intentions. Additionally, upward pressure on commodity prices, already impacted by COVID-19-related supply chain disruptions, may see a more sustained impact as economic sanctions play out and will probably be the main source of risk for possible broader economic repercussions. As such, inflationary pressures may remain high particularly as it relates to gas prices.

Finally, and we can’t stress this enough, these views and opinions are secondary to the conflict taking place in Ukraine. While our primary job is to provide investment advice, we certainly recognize that there is an immediate humanitarian crisis taking place in eastern Europe. We hope the conflict ends quickly and offer our thoughts to those impacted.**

Closing Remarks

As market and economic conditions evolve in the weeks and months ahead, you can rely on your PFS team to continue to monitor and adjust our portfolios and keep you up to date on these and other developments. We also want to remind you that our office is open for clients who would like to meet in person. For those who prefer to meet virtually, we continue to use Zoom for virtual meetings, and are always available via phone. Just let us know how you prefer to meet, and we’ll make it happen!

We are always honored to help our clients’ friends and business associates take greater control of their future with guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide. If you, or someone you know, has questions or concerns about your personal investment strategy or business finances, please don’t hesitate to share information about our complimentary Second Opinion Service and reach out to your experienced team of wealth advisors at 440.740.0130.

Don’t forget to connect with PFS on Twitter, LinkedIn, Facebook and YouTube.

Click here for a summary of the material changes made to our ADV Part 2A between April 2020 and March 2021.

To review our firm’s privacy policy, full ADV Part 2A Firm Brochure and ADV Part 2B Brochure Supplements, please visit our website at PlannedFinancial.com/contact-us/.

You may also request copies of these current brochures by contacting our office at 440.740.0130.

Real People. Real Answers. 

Health, Happiness, and Good Fortune,

Frank Fantozzi
CPA, MST, PFS, CDFA, AIF^®, CEPA
President & Founder
Frank@PlannedFinancial.com

¹ LPL Research, 1/28/22 https://lplresearch.com/2022/01/28/gdp-gets-a-big-boost-from-inventories-2/#more-23615

²The Forbes Best-In-State Wealth Advisor ranking, developed by SHOOK Research, is based on in-person and telephone due diligence meetings and a ranking algorithm that includes: client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK Research receives a fee in exchange for rankings.

³Established in 1988, The Weatherhead 100 awards are the premier celebration of Northeast Ohio’s spirit of entrepreneurship and the companies leading the way in Northeast Ohio. Each year, the organization recognizes an elite group of companies who are the best example of leadership, growth and success in our region. PFS will be honored during a special virtual celebration on December 9^th. The Weatherhead 100, awarded to PFS in 2007, 2008, 2009, 2011, 2016, 2017, 2018, 2019 and 2021 is based on sales growth, employment of 15 or fewer employees, and/or companies with less than $5 million in net sales. In 2021, 125 applicants applied for the award in three different award categories: Weatherhead 100 Upstart, Weatherhead 100 and Weatherhead 100 Centurion, with 17 awards granted in the Weatherhead 100 Upstart category. For more information, visit https://weatherhead.case.edu/events/weatherhead100/winners.

⁴Marymount Hospital is a full-service general hospital within the Cleveland Clinic enterprise. Marymount Hospital is a Catholic hospital, affiliated with the Sisters of St. Joseph, Third Order of St. Francis  and helps ensure conformity with the Ethical and Religious Directives for Catholic Health Care Services. The Board of Trustees serves in an advisory role to the Board of Directors and the Hospital President.

⁵The Forbes ranking of America’s Top Women Wealth Advisors Best-in-State, developed by SHOOK Research, is based on an algorithm of qualitative and quantitative data, rating thousands of wealth advisors with a minimum of seven years of experience and weighing factors like revenue trends, assets under management, compliance records, industry experience and best practices learned through telephone and in-person interviews. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receives a fee in exchange for rankings.

⁶According to Forbes, advisors were selected for the Top Next Generation Wealth Advisors list based on insights from SHOOK Research™, which compiles quantitative and qualitative data. Advisors were evaluated using a variety of criteria and must have been born after 1980 to qualify for the award.* Advisors were required to have a minimum of four years relevant experience and acceptable compliance records. Overall ratings were based on, but not limited to: client service models, investing process, business types, revenue produced, and assets under management. Yang was recognized for the award in 2017 and 2019.

**Some research was provided by LPL Financial, LLC, February 2022. Neither PFS or LPL make any representation as to its completeness or accuracy.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock.

EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

All index data from FactSet.

Planned Financial Services, LPL Financial, Forbes, SHOOK Research, Marymount Hospital, Cleveland Clinic, Weatherhead School of Management, Case Western Reserve University, Crain’s Cleveland,  the Exit Planning Institute and Asian Services in Action (ASIA) are all separate, unaffiliated entities.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific issues with a qualified tax advisor.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC.

Financial Planning offered through Planned Financial Services, a Registered Investment Advisor and a separate entity from LPL Financial.

Retirement planning is all about managing risk. Longer life expectancies generally mean longer retirements, which increases the risk that you’ll have to live on less income. Other risks include rising or unexpected medical expenses and sudden changes in the financial markets.

One risk that’s often overlooked is inflation. Although the inflation rate has been very low in recent years, most experts predict higher inflation for the foreseeable future. Such increases have the potential to disrupt your retirement plans.

How it erodes value

Inflation can slow the growth of certain assets or even reduce their value and erode the purchasing power of your investments. Let’s say you have a money market account that earns a 2% annual return and inflation is 3%. That investment you thought was growing at a modest rate is actually shrinking in spending power.

Many people invest in fixed-income securities (bonds) to reduce overall portfolio risk. But if these holdings aren’t keeping pace with inflation, your retirement savings may not last as long as you originally planned.

What you can do

Here’s what you can do to help manage inflation risk:

• Estimate the length of your retirement, based on your family’s longevity history and other factors.
• Determine how much income you’ll need, considering money you may require to cover not only daily costs, but also discretionary expenses and unexpected medical and other costs.
• Work with your financial advisors to develop a budget and an investment strategy designed to protect your wealth from inflation.

Managing inflation risk may involve saving more for retirement or reallocating some of your portfolio to assets that tend to keep pace with or outperform inflation, such as stocks or real estate. It may also mean rethinking the traditional rule that says the percentage of your portfolio in equities (stocks) is 100 minus your age. In other words, if you’re 60, then 40% should be in stocks and 60% in bonds.

But given increasing life expectancies and the potential impact of inflation in coming years, you may want to consider subtracting your age from a larger number, such as 110 or even 120. So, 60-year-olds would allocate 50% to 60% of their portfolios to equities.

Why you need advice

To put together a retirement plan that will achieve your goals, consider possible threats, including inflation risk. Although it’s impossible to eliminate all risks — including the risk that you’ll lose your original investment money — PFS or your financial advisors can help you minimize them.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

Whether you’re trying to protect your assets from possible creditors, prevent young heirs from wasting their inheritance or minimize current taxes, there’s likely a trust for you. Here are several strategies that can help you achieve your estate planning goals.

Protecting assets

A trust can be a great way to protect your assets — but it’s helpful if the trust becomes the owner of the assets and is irrevocable. That way, you as the grantor can’t modify or terminate the trust after it has been set up. This is the opposite of a revocable trust, which allows the grantor to modify the trust during his or her lifetime.

Once you transfer assets into an irrevocable trust, you’ve effectively removed all of your ownership of the assets and the trust. One benefit is that, because the property is no longer yours, it’s generally unavailable to satisfy claims against you. However, placing assets in a trust won’t allow you to sidestep responsibility for any debts or claims that are already outstanding at the time you fund the trust. There also may be a substantial “look-back” period that could negate the protection that would otherwise be provided.

Limiting access

If you’re concerned about what will happen to your assets after they pass to the next generation, you may want to consider establishing a “spendthrift” trust. Despite the name, a spendthrift trust does more than just protect your heirs from themselves. It can safeguard your family’s assets against creditors as well. The trust also protects loved ones in the event of relationship changes. For example, if your son divorces, his spouse might not be able to claim a share of the trust property in the divorce settlement.

Several types of trusts can be designated a spendthrift trust — you just need to add a spendthrift clause to the trust document. This type of clause restricts a beneficiary’s ability to assign or transfer his or her interests in the trust, and it restricts the rights of creditors to reach the trust assets. But a spendthrift clause won’t avoid claims from your own creditors unless you relinquish any interest in the trust assets.

You can usually gain greater protection against creditors’ claims if you give your trustee more discretion over trust distributions. If the trust requires the trustee to make distributions for a beneficiary’s support, for example, a court may rule that a creditor can reach the trust assets to satisfy support-related debts. For increased protection, give the trustee full discretion over whether and when to make distributions. You’ll need to balance the potentially competing objectives of having the access you want and preventing others from having access against your wishes.

Many options

There are many other types of trusts that can, for example, facilitate charitable giving, provide lifetime income and enable you to pass wealth on to multiple generations. Just note that the laws regarding trusts can be complicated and may vary by state. Contact PFS or talk to your estate planning advisor about your specific estate planning wants and needs.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor. 

In recent years, the IRS has audited only about 0.5% of individual tax returns. But that’s probably going to change. President Biden and some legislators have pushed for increased IRS funding to help close the tax gap — the difference between what taxpayers owe and what they actually pay. In fact, several federal spending proposals rely on revenue recovered from unpaid taxes to avoid new tax increases.

It’s still not clear which groups will be targeted. But the IRS has stated that historically, audit risk rises with income and that taxpayers with incomes higher than $10 million are much more likely to be audited than other taxpayers. Regardless of your tax bracket, be prepared to act if you receive a letter from the IRS. Your response may determine whether the process is drawn-out and frustrating or relatively swift and painless.

Need to know

The IRS generally contacts taxpayers about an audit via U.S. mail or with a phone call and follow-up letter. Important: The IRS never uses email to notify taxpayers of pending audits. If you do receive an email, it’s likely an attempt to defraud you.

The upper right corner of the envelope you receive should include a number specifying the reason for the correspondence. For example, Notice Number CP05A indicates that the IRS is examining your return and requires documentation.

Your return may have been chosen for examination randomly, or because the IRS needs additional information from you. Even if the IRS suspects mistakes or misstatements, you should respond while remaining calm and cooperative.

Respond appropriately

Most IRS audit notices include a deadline by which you’re required to respond. With that and the focus of the audit in mind, begin gathering the information you’ll need to respond appropriately. This may include invoices, canceled checks and receipts, as well as your tax return for the year(s) in question. Make duplicates of any documents you’ll need to provide to the IRS, so you don’t hand over your only copy of a record.

Although it’s critical to provide the information requested, you don’t want to offer additional records, such as tax returns from years falling outside the audit’s scope. Doing so may prompt more questions and a more extensive audit.

If a tax preparer helped with your return, contact that person. Your tax professional will likely know what information should be provided and how to answer questions appropriately, without inviting further investigation. The advisor also can review any documents you’re asked to sign — before you put pen to paper. This can be valuable whether you’re responding in person or via letter. Finally, having an expert on your side can limit the time and stress of the audit. 

Owing — or not owing — money

Most taxpayers being audited assume that the process will end with them owing money. In fact, audits often conclude with an individual’s tax liability remaining the same. And in some cases, the IRS ends its examination concluding that it owes money to the taxpayer, plus interest. But if you do end up owing back taxes, how much should you expect to pay? The answer varies widely. Keep in mind that, in addition to the amount owed, you’ll be assessed interest and, potentially, penalties.

Although most audited taxpayers agree to any changes proposed by the IRS, you can appeal the decision through the IRS’s Appeals Office. Or you can take your case to court. IRS Publication 5, Your Appeal Rights and How To Prepare a Protest If You Disagree, explains your rights to appeal and the proper procedures to do so.

Best case scenarios

Of course, most audits don’t end up in court. Many, indeed, are correspondence audits in which you mail requested documents back to the IRS and respond to any follow-up questions.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.