Author Archives: Aaron Ang

What are the Chances that your Income Tax Return will be Audited?

– Sean Tang, Tax Practitioner, from Tax Solutions Practice, LLC

For the vast majority of taxpayers, there is not much need to worry that you will be audited. In 2016, only 0.6% of individual income tax returns were audited according to the IRS 2017 Data Book. Why? For starters, the IRS budget has been cut resulting in more than 2,200 fewer agents available to audit returns. However, the “real” audit rate is closer to 7.o% as the IRS does not include the over 9.2 million notices that are questioning items on your client’s tax returns such as forgetting to include a 1099-Misc form.  The IRS is relying more and more on technology to uncover underreporting and underpayment of taxes. Also, certain taxpayer groups are more susceptible to catching the attention of auditors.

If you’re in the middle of an audit or owe back taxes, contact us to schedule a free consultation. http://www.taxsolutionspractice.com

Returns that report more than $10 million in income or report no income

Sixteen percent of individuals who reported over $10 million in income were audited in 2014. Surprisingly, those returns that reported no income were audited at a higher rate than the average person. In 2014, 5.3% of tax returns with no income reported were audited. If your income is $25,000 – $200,000, you’re highly unlikely to be singled out for an audit.

Estate Tax Returns of more than $5 million

In 2014 the IRS did an audit on 8.5% of estate tax returns which was well above the .9% of individual returns. Even larger estate tax returns, 21% of those between $5 million to $10 million were audited, while 27% of those over $10 million received an audit.

Individual filing of international returns raises a red flag

The IRS is focusing more attention on international returns. Statements made by experts in the field, strongly emphasized the practice of offshore tax evasion as being fundamentally unfair. Wealthy people evading the law by stashing their money overseas and not paying their share of tax is forcing the bulk of lower income citizens to foot the bill to fund the government. In 2014 only 4.8% of the international returns were audited.

Errors in information entered

Simple careless mistakes in filling out income tax forms are made which send up red flags to the tax auditors. Filers neglect to get all report forms and statements together and forget to report dependents and exemptions correctly. The automated systems recognize these discrepancies, but can’t tell if they are actual mistakes or intentional. Neglecting to report all your income and other figures could result in an audit especially at higher incomes. Those who contribute to more charities and other organizations open up the possibility for fraud.

Reports of itemized deductions that is unrealistic

If an individual or small business claims itemized deductions that are clearly out of line, they could be signaled out for an audit. Filers need to know what a legitimate deduction entails.

Carefully reading directions for completing forms and checking for accuracy and honesty will reduce the chances of an audit. Hiring a tax professional, specifically someone with tax resolution experience like our firm, can help you stay out of tax trouble.

If you need an expert tax resolution professional who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem. http://www.taxsolutionspractice.com

 

Top 10 IRS Audit Red Flags

No one wants to pay more income taxes than they are required to, but be careful if you do your own taxes. Attempting to cut your tax liability by getting into IRS grey areas can cause you problems later on. You don’t have to do anything unethical to get your return pulled for an audit, you just have to raise too many of these red flags. If you’re in the middle of an audit or owe back taxes, contact us to schedule a free consultation. Call us at 814-769-0202 or visit our website http://www.taxsolutionspractice.com

 Making too much money. Sounds like a problem everyone would like to have, but making over $200,000 may make you more likely to be audited. The fact is that there are fewer auditors, so the IRS is focusing on where they can make the most bang for the buck.

  1. Not reporting all your income. No matter how much or little you make, report everything. In some way or other, unless you run a strictly cash business (another red flag), all of your income is reported to the IRS. W2, 1099 and other forms you receive are duplicated and sent in to the IRS. If your reported income doesn’t match theirs, that’s one more red flag.
  2. Math errors. Whether you file electronically or still file paper forms, your information gets entered into a computer. And one thing computers are very good at is doing math. If things don’t add up, or there was an honest mistake in inputting the information, it can raise a red flag. A math error won’t necessarily get you an audit, but it will get attention you may not want. Make sure to double check your returns and have a qualified tax professional assist you and keep you out of tax trouble.
  3. Home businesses that never make money. Sole proprietorships that file a Schedule C year after year and always show a loss will raise a red flag. Even if you show a profit, but the profit margin is always unreasonably small, that will get the IRS’ attention.
  4. Large charitable deductions. There is nothing wrong with being charitable and there is no legal limit to how much of your hard earned cash you can give away, but if your donation is out of sync with the norm, that’s another red flag.
  5. Overstating business expenses. Depending on the type of job you have, there can be many legitimate expenses that your employer doesn’t reimburse you for. If you’re a business, you might be tempted to write off just a little extra. These might be genuine deductions. But don’t try to deduct something that’s not on the approved list and don’t claim deductions way outside the norm. Check with your tax professional and stay up to date with tax laws so you’re not padding your tax return with write offs.
  6. Sketchy real estate rental revenue or losses. Some people will ‘rent’ their property to friends or family at well below market value and then claim normal rental business expenses. As with other areas, the IRS compares what you claim against local standards to determine if this is a legit business. If not, they will disallow the deductions.
  7. Home office deductions. There are absolutely legitimate home office deductions but the IRS has very strict guidelines on what you can claim and how much. Try to claim too much and this is a classic red flag.
  8. Claiming losses for things that aren’t deductible or deductible in your circumstances. One example is claiming day-trading losses on a Schedule C. If you dabble in stock trading and take a loss, it may or may not be deductible, but almost certainly doesn’t qualify for a Schedule C loss. You also can’t take a deduction for alimony. The IRS maintains a list of non-deductible expenses, make sure to check that and check with your tax professional.
  9. Claiming 100% business use of your vehicle. If you spend most of the time in your vehicle doing your job, you may think it’s easier just to claim the whole thing for business. Wrong. You will either have to show your personal use, no matter how small, or show you have a second vehicle for personal use.

Many of these items are red flags for an audit, but many are also legitimate deductions. The key is to have a qualified tax professional on your side, especially someone who is well experienced in tax resolution and can help you minimize the risk of an audit and the resulting tax problems down the road. At the very least, keep meticulous records and make sure you are inside the guidelines of the IRS.

If you need an expert tax resolution professional who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem.  Call us at 814-769-0202 or visit our website http://www.taxsolutionspractice.com

If You Receive an IRS Notice or Letter, Here Is What to Do

Each year the IRS sends millions of letters and notices to taxpayers. If you receive one, do not panic. Here’s what to do:

  1. Follow the instructions in the letter.
  2. There are many reasons the IRS sends notices to taxpayers. Here are the common reasons:
  • You have a balance due.
  • You are due a larger or smaller refund.
  • IRS has a question about your tax return.
  • IRS needs to verify your identity.
  • IRS needs additional information.
  • IRS changed your return.
  • IRS needs to notify you of delays in processing your return.
  1. Each notice or letter contains a lot of valuable information, so it’s very important that you read it carefully. If you receive a notice about a correction to your tax return, you should review it carefully. You usually will need to compare the information in the notice to the entries on your tax return.If you agree with the correction, you usually don’t need to reply unless a payment is due.

    If you don’t agree with the correction the IRS made, it’s important that you respond as requested. Respond to the IRS in writing to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left corner of the notice. Allow at least 30 days for a response from the IRS.

There are two main reasons you’ll want to comply and respond before the requested specific date:

  • to minimize additional interest and penalty charges.
  • to preserve your appeal rights if you don’t agree.
  • To avoid IRS Collection Process such as Wage and Bank Garnishments and Liens etc. 
  1. If you have questions, contact IRS by calling the telephone number in the upper right corner of the notice. When you call, have a copy of your tax return and the notice available. You can also write to IRS at the address in the notice or letter. If you write, allow at least 30 days for IRS to respond.
  2. Keep copies of any correspondence, notices or letters with your tax records. You may need these documents at a later date.
  3. Call a licensed tax resolution specialist. IRS Notice or Letter could lead to Audit or Collection situation if not dealt with carefully or correctly. A licensed tax resolution specialist is usually well trained with good knowledge and experience in this very special tax practice. Hiring a right tax resolution specialist will save you lots of time or reduce tax debts.

We, as licensed tax solution specialists, are ready to help you any time.

WE CAN HELP YOU WITH

  • Offers in Compromise (Pennies on the dollar)
  • Wage Garnishments
  • Bankruptcy
  • Delinquent Tax Returns
  • IRS Bank Levies
  • IRS Payment Plans
  • IRS Audits
  • Payroll Tax Problems
  • Penalty Abatement
  • Liens
  • Collection Appeals
  • Freedom of Info Requests

We offer a FREE no-obligated Tax Debt Analysis/Alternative Choices of Tax Resolution Session. Contact us now at 614-500-3973 or jtang@taxsoltuionspractice.com

BONUS FREE OFFER:

Click HERE to Receive Our Gift “Confidential Special Report-Income Taxes Owed”

Tax Solutions Practice, LLC

470 Olde Worthington Road, Suite 200

Westerville, OH 43082

http://www.taxsolutionspractice.com

 

 

 

 

Choosing An Accounting Service

It’s a funny thing, what we consider luxuries in the United States.  Some people cannot live without an artisan-brewed $5 cup of coffee but feel that a dry cleaner is too expensive.  They own a huge television, yet watch old TV shows on their smartphone.

Closer to home, they complain about their taxes and use a free tax software system to file because having their return prepared by a firm that specializes in it is “too costly.”

In this column, we’ve often talked about the little things that anybody can do to get their monetary ducks in a row and there are thousands of so-called “experts” online doing this.  Ironically, this morning a funny thing happened – I got an email with tax tips from the IRS.

Yes.  You read that right.  Tax tips from the IRS.

That’s kind of like getting tips on betting from your bookie.   Actually, though, once I sorted through the email and the assorted videos that they had included, my professional opinion is that they had put together an easy-to-understand tool that many small businesses and owners could use in conjunction with a tax professional to understand many of the most common deductions.

One of the most interesting pieces in their email was the IRS’ take on the home office deduction.  The facts in this situation are pretty telling and I understand why the IRS is looking to simplify the process – nearly 3.4 million business owners deducted nearly 10 billion dollars within the structure of the so-called “home office deduction” in 2014 and to say the language was “fuzzy” is putting it mildly.  The new rules that the IRS put in place last year were expected to make it a great deal easier on the small business owner when it comes to paperwork and documentation of a home office and honestly, the jury is still out on that.

What I really wanted to talk about this week was a much larger issue that recently came to light in a chance meeting I had with a well-known speaker.  Prior to him selling his sports management business and becoming a speaker and trainer, this young man handled all the accounting for his multi-million dollar business – with a free copy of “Turbo tax.”

Yeah.  I thought the same thing.  When he finally took the advice of friends who knew better, guess what?  He received a refund from the state of California and the IRS for over $135,000.  Anybody who has ever dealt with the State of California should stand in awe of that fact by itself!

Can you keep your own books and file your own taxes?  Absolutely!   Should you do it yourself?  No way.  Getting a professional to help, even after the fiscal year is gone is still far better than going solo.  Not only can you save yourself hours of time and money, you can keep the IRS honest.

With that in mind, since every taxpayer knows that the first quarter of the year is our busiest season, I want to encourage you to schedule an appointment here to see if there are any surprises – like free money – in your bookkeeping or return.  If this is you, please email me jtang@taxsolutionspractice.com or info@taxsolutionspractice.com or give me a call at 814-769-0202 to schedule an appointment to save you some serious money and keep you out of the tax doghouse.

No matter how bad your books, profit, or paperwork, chances are that Tax Solutions Practice, LLC can clear the path for you and save you a tremendous amount of heartache and money within your tax liabilities.  Take the time, take the opportunity, and call us – we’ll make that pain go away!