Category Archives: News

Tax Return Audits

In the event you are ever audited by the IRS, here are some recommendations:

  1. Keep the IRS from holding the audit at your business or home.  Instead, engage a professional and meet at the IRS office or at the tax professional’s office.
  2. Five the auditor no more information than he or she is entitled to. Do not talk during the course of the audit any more than necessary.
  3. The IRS must complete and audit within 3 years of the time your tax return is filed, unless the IRS finds tax fraud or a significant underreporting of income (Both of which extend the deadline).
  4. If you are missing receipts or other documents, you are allowed to reconstruct records.
  5. When you receive an audit report, call the auditor (or have your representative do it) if you don’t understand or agree with it. If necessary, have your representative meet with the auditor’s manager to see if a compromise can be made.
  6. If you can’t live with an audit result, you may appeal within the IRS or file a petition to go to tax court.

Options for Taxpayers Who Owe Taxes

Options for Taxpayers Who Owe Taxes

If you owe taxes but can’t pay in full, there options for you. Most importantly, make sure you file your tax return and pay as much as you can. Then let the us help you choose your best option to pay. Here are some options to consider, even if you can’t pay the full amount right now:

  • Borrow the money.  If you don’t have the money to pay all your taxes now, then you may want to get a loan from a bank or other source. The interest rate may be lower than the interest and penalties the IRS charges on late taxes. You also may be able to borrow against your assets or sell them to raise cash.
  • Make an Online Payment Agreement.  If you are unable to pay in full, then consider paying over time. If you owe $50,000 or less, you can apply for an installment agreement. You may choose to make convenient monthly direct debit payments for up to 72 months. With this option, there are no checks to write or send. And you won’t miss a payment or pay late.

We can also help if your tax debt is more than $50,000 or you need more than six years to pay. In these cases, the IRS may ask for further financial information. See Form 433-A or Form 433-F, Collection Information Statement.

  • Offer in Compromise.  An Offer in Compromise is an agreement that allows you to settle your tax debt for less than the full amount. Generally, the IRS will accept an offer if it represents the most the agency can expect to collect within a reasonable time. The IRS looks at several factors to make a decision on your offer.

Figure Your Withholding.  The IRS Withholding Calculator tool can help you avoid having too much or too little income tax withheld from your pay. You can use it anytime throughout the year to stay on target.

Unpaid Debt Can Affect Your Refund

If you owe a debt that’s past-due, it can reduce your federal tax refund. The Treasury Department’s Offset Program can use all or part of your refund to pay outstanding federal or state debt.

Here are five facts to know about tax refunds and ‘offsets.’

1. The Bureau of Fiscal Service runs the Treasury Offset Program.

2. Debts such as past due child support, student loan, state income tax or unemployment compensation may reduce your refund. BFS may use part or all of your tax refund to pay the debt.

3. You’ll receive a notice if BFS offsets your refund to pay your debt. The notice will list the original refund and offset amounts. It will also include the agency that received the offset payment and their contact information.

4. If you believe you don’t owe the debt or you want to dispute it, contact the agency that received the offset. You should not contact the IRS or BFS.

5. If you filed a joint tax return, you may be entitled to part or all of the refund offset. This rule applies if your spouse is solely responsible for the debt. To request your part of the refund, file Form 8379, Injured Spouse Allocation.

Year Round Tax Tips

Year Round Tax Tips

With the end of the year just around the corner, I get quite a few calls from clients and potential clients about what they should do to plan for year end.  Tax planning is a year round activity, not something we try to accomplish in the last week of the year, although there are things we can do to mitigate tax before the ball drops in Times Square.

  1. Start a filing system.  If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, which is better than nothing (not much) but it can cost you quite a bit more for a tax professional to go through and decipher. We recommend a more complex yet effective approach like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.
  2. Make Charitable Contributions.  If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Once again, save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats.

If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2013. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2013.

  1. Contribute to Retirement Accounts.  You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.

Substitute for Returns

The IRS has the ability to prepare and file returns for you if you choose not to file (Internal Revenue Code 6060). This is commonly known as an SFR.  In most cases, it is a disadvantage to have the IRS do this.  Typically, the IRS will allow you one exemption, no dependents, and only allow the standard deductions on the return they file for you.  Furthermore, the IRS will calculate your tax liability for you, usually from your W-2s and 1099s.  The IRS may also impute income to you based upon tabled furnished by the Bureau of Labor Statistics showing the income necessary to sustain the lifestyle in your community.  This can result in a much higher tax bill than you would have had if you or a professional prepared your return.

If the IRS prepares an SFR, it will mail it to your last known address asking you to sign it and return it. It may not be in your best interest to sign such a return and if this does happen to you, you should contact a tax professional immediately.

Non Filers – Part 2

Very few people are put in jail for not filing a tax return, but it does happen occasionally. A willful failure to file tax returns is a misdemeanor if you owe taxes.  You can be sentenced for up to a year in jail and a $25,000 fine for each year of non-filing (Internal Revenue Code 7201).  If you failure to file is deemed to be part of a scheme to evade taxes you can be charged with a felony, a more serious crime, which carries a maximum punishment of five years and more sever monetary penalty.  The felony crime requires a deceitful act beyond the non-filing, such as using a fake social security number.  Non-filers may be contacted by the IRS Criminal Investigation Division, or CID.  This does not mean that you will be prosecuted, but you still should get your past due returns prepared and filed.  In deciding whether or not to prosecute a non-filer, the CID considers many factors, such as:

  1. The number of years you haven’t filed
  2. The amount of taxes due
  3. Your occupation and education
  4. Your previous history of tax delinquencies
  5. Whether or not you are involved in a business that deals with large amounts of cash

Non-filers – Part 1

The IRS looks for nonfilers through its computerized Information Returns Program (IRP).  This tremendously effective operation matches information documents, such as W-2s and 1099s form payers against the tax returns you have filed.  If the computer search fails to find a return, the IRS initiates a taxpayer Delinquency Investigation, or a TDI.  A TDI is an IRS search for a taxpayer to discover why he or she did not file a tax return.  TDS’ usually begin with computer generated notices.  If you don’t respond to the notices, your case is normally turned over to a Taxpayer Service Representative for a telephone contact or more letters. Failure to respond will lead to a contact to A Revenue Officer at your local IRS office.  This means that the IRS is serious and you should contact a professional immediately.

Don’t Forget Your State

Unless you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas Washington or Wyoming, the IRS is not the only agency that you have to be concerned about.  All 41 states have their own income tax reporting requirements, and a few cities do as well.  In many cases, if you haven’t filed a tax return, you may be contacted first by the state taxing authorities, rather than the IRS.  The IRS will contact you soon after, however, as all states except a few have agreements with the IRS to trade tax information about their residents.  Nowadays, with such sophisticated technology available, the exchange occurs automatically.  If one taxing authority finds you aren’t filing, their computer systems can inform the other.  If you file a Federal tax return, even if it is late, be sure to get into compliance with the state as well.

Options for Taxpayer who owe taxes – Let us help you choose your best options……

• Borrow the money.  If you don’t have the money to pay all your taxes now, then you may want to get a loan from a bank or other source. The interest rate may be lower than the interest and penalties the IRS charges on late taxes. You also may be able to borrow against your assets or sell them to raise cash.

• Make an Online Payment Agreement.  If you are unable to pay in full, then consider paying over time. If you owe $50,000 or less, you can apply for an installment agreement. You may choose to make convenient monthly direct debit payments for up to 72 months. With this option, there are no checks to write or send. And you won’t miss a payment or pay late.

We can also help if your tax debt is more than $50,000 or you need more than six years to pay. In these cases, the IRS may ask for further financial information. See Form 433-A or Form 433-F, Collection Information Statement.

• Offer in Compromise.  An Offer in Compromise is an agreement that allows you to settle your tax debt for less than the full amount. Generally, the IRS will accept an offer if it represents the most the agency can expect to collect within a reasonable time. The IRS looks at several factors to make a decision on your offer.

 

Unpaid debt can affect your refund

If you owe a debt that’s past-due, it can reduce your federal tax refund. The Treasury Department’s Offset Program can use all or part of your refund to pay outstanding federal or state debt.

Here are five facts to know about tax refunds and ‘offsets.

1. The Bureau of Fiscal Service runs the Treasury Offset Program.

2. Debts such as past due child support, student loan, state income tax or unemployment compensation may reduce your refund. BFS may use part or all of your tax refund to pay the debt.

3. You’ll receive a notice if BFS offsets your refund to pay your debt. The notice will list the original refund and offset amounts. It will also include the agency that received the offset payment and their contact information.

4. If you believe you don’t owe the debt or you want to dispute it, contact the agency that received the offset. You should not contact the IRS or BFS.

5. If you filed a joint tax return, you may be entitled to part or all of the refund offset. This rule applies if your spouse is solely responsible for the debt. To request your part of the refund, file Form 8379, Injured Spouse Allocation.