In reality, the IRS audits quite a few returns considering the millions of tax returns they process annually. The average number of returns audited annually totals just under 1%.
The IRS doesn’t routinely audit a tax return unless there is some key indicator. For instance, this could include a higher level of deductions compared to revenue earned, a deduction that requires documentation, or a specific item that’s on the list of “red flags.”
If you ever do acquire a letter stating you are going to be audited make sure you contact Your IRS Problem Solvers or accountant right away for assistance in preparing a response.
Explanations for an IRS Taxes Audit
The IRS has a standard list of reasons for requesting an audit. Just only because your return falls into one of these categories does not automatically mean you will be audited, but it certainly increases your chances. You may be audited by the IRS in the event you fall into any of the following categories, although this isn’t a full list:
* You are self-employed
* You submit a mileage log showing small business use of this vehicle
* You attempt to deduct home office expenses
* You earn an inordinately high salary
* You submit a big list of itemized deductions.
There’s truly no way of honestly preparing your taxes without having including all relevant facts about your enterprise and earnings. However, if you should frequently include any of the above items when preparing your return, you need not to be surprised if you are at some point audited.
The IRS Audit Process
Don’t let the idea of an IRS taxes audit scare you to death. An IRS taxes representative is not going to show up on your doorstep a single morning demanding to see all of these financial documents. Approximately 1/3 of all audits are conducted by mail and in most cases, the IRS will not be auditing your total taxes, but rather but a portion of your return. For instance, if you often deduct company meals the IRS may request receipts for these expenses.
The letter you obtain from the IRS will outline precisely what portion of your respective tax return is under dispute. IRS taxes attorneys will use the facts in that letter to assist you to prepare your IRS audit defense.
Your Rights In the Course of an IRS Audit
You have some rights during an IRS audits and these include items like the following, but not limited to just those listed here:
* The right to have an IRS tax attorney or accountant with you at your audit. Your attorney or accountant should have special permission to practice in front of the IRS
* The right to make a tape recording of your respective audit meeting, as long as you give the IRS at least ten days’ notice of your plan to do so
* The right to have your penalties waived if you’re able to prove that any mistake on your tax return was because of poor advice was given by an IRS employee
* The opportunity to give your IRS taxes lawyer power of attorney to ensure you will not need to be present at the IRS meeting throughout the entire process. This buys your attorney time, due to the fact he’ll need to request an extension before the meeting, to ensure he has sufficient time to gather details from you in person beforehand.
The most efficient way to avoid an IRS tax audit is to prepare an honest and accurate tax return every year. If you do make a mistake and end up being audited, the best defense for an IRS audit is going to be a qualified tax professional that can represent you in front of the IRS.
Still have more questions? Feel free to give us a call or shoot us an email, we’re here to help!
In years past, the Internal Revenue Service (IRS) has never called taxpayers to collect back taxes. However, beginning this month, the IRS will use four private collection firms to deal with severely delinquent cases. Although this new strategy is said to be in place to help alleviate stress and prevent harassment for taxpayers they have experienced in the past, I believe this change may be an attempt to improve the IRS’s budget. And, this policy change comes at further costs to the tax payers.
Collection companies employ aggressive collection tactics that can at times be borderline abusive and this policy would further degrade taxpayers’ perceptions of the IRS. The IRS has attempted this strategy of using private collectors previously and each time they have needed to stop the project. Not only were taxpayers being abused, but the project ended up costing money due to high administrative costs and commissions to debt collectors. In 2006, the project lost over $2 million.
This looks like another instance where the IRS needs to count the cost of their policies for taxpayers, considering reductions to their operating budget, the IRS has also been cutting back on services to taxpayers. For example, when calling the IRS Help Line, taxpayers are required to wait on hold for an extended duration. In fact, over 60% of taxpayers could not get through to the IRS at all and 49% of correspondences were not handled in a timely manner. In our 30+ years of experience in dealing with the IRS, we have been able to successfully help our clients resolve issues with the IRS in a constructive and dignified manner, without the need to employ debt collection agencies. We look forward to the day when the IRS can improve the ways in which it reaches out to taxpayers.
Below are some commonly asked questions about this new policy:
1. How will I be notified if this new debt collection policy if applies to me?
The IRS will notify you only through post mail and they will not call you directly or send you an email. The only alternative form of correspondence confirmed has been via fax. The IRS stated they would be mailing out advisories of their new policy for debt collection, so beware of any communications you may receive outside of mail or fax, as this is probably is not the IRS contacting you. By calling the IRS with your case ID number, you can also validate the existence of the matter with IRS.
2. Should I Do Anything Right Now In Anticipation of the New Policy?
For those who have not worked out a compromise or plan to pay down balance due to the IRS, this new policy would serve as the impetus to do so as soon as possible. Those who have unresolved balances should be expecting IRS debt collectors to contact them in response to this new policy.
3. What are Some Tips on How to Handle IRS Debt Collectors if I’m contacted?
Our best advice would be to seek the guidance of a tax professional, as soon as possible, to help you resolve your current tax issues. Resolution of your tax problems is the best way for you to get back on track and focus on your business and life, with any tax issues resolved.
For more information about this important new IRS Policy, please contact IRS Problem Solvers at 877-676-5837 or email us at [email protected].
Phil Liberatore discusses why The Internal Revenue Service’s battle against fraud and identity theft is intensifying in 2017, as tax-filing season opens and the most needy taxpayers are getting caught in the middle.
(PRWEB) February 27, 2017
“During recent years, it is quite disheartening to know, criminals now have the skills and capacity to impact our entire system and control how Internal Revenue Service issues refunds,” says Liberatore.
The IRS was barred from issuing refunds before February 15, 2017 on any returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit. Congress mandated the delay to provide the IRS additional time to review returns and identify potential fraudulent claims before any refunds are issued.
According to Liberatore, taxpayers who take advantage of Earned Income Tax Credit or the Additional Child Tax Credit, will likely have to wait even longer to receive their refunds. According to the IRS, refunds will be further delayed until the week of February 27th, due to the President’s Day holiday and weekend considerations.
Liberatore notes that in the last three years tax payers have suffered tremendously due to Internal Revenue Service need for focus on fraud and identity theft and budget reductions.
Phil Liberatore and his team of CPA’s offer a full range of services including general accounting, tax strategy/tax preparation, and financial management for their clients throughout Southern California. Their experienced team consistently invests in continuing education and they are some of the most knowledgeable and credentialed professionals in the industry.
Contact Phil Liberatore, CPA
IRS Problem Solvers, Inc.
The Protecting Americans from Tax Hikes Act of 2015 was signed into law on December 18, 2015. The law renews a long list of tax breaks known as “extenders” that have been expiring on an annual basis. This legislation makes some of the rules effective through December 31, 2016. Others are effective through 2019, and some are effective permanently. Provisions in the Act also make changes to existing tax rules that were not part of the extenders. All of these changes will affect your tax planning now and in future years.
Here’s an overview of selected provisions.
- The provision for tax-free distributions from IRAs to charities is now permanent. When you’re age 70 ½ and over, this break lets you make a qualified distribution of up to $100,000 from your IRA to a charity. The transfer counts as a required minimum distribution and is excluded from your gross income.
- If you’re a homeowner, you can exclude mortgage debt cancellation or forgiveness of up to $2 million for 2015 and 2016. Discharges of qualified mortgage debt can also be excluded after January 1, 2017, if you have a binding written agreement in effect before that date. This tax break is only available for your principal residence.
- If you or a family member is an eligible student, you may be able to claim a tuition and fees above-the-line deduction for qualified higher education expenses for 2015 and 2016. For 2015 tax returns, the maximum deduction is $4,000 when your adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers). The maximum deduction is $2,000 when your AGI is less than $80,000 ($160,000 for joint filers).
- The deduction for up to $250 of out-of-pocket eligible educator expenses is now permanent. It will be indexed for inflation beginning with 2016 tax returns. You claim this deduction “above the line,” meaning it’s available even if you don’t itemize. If you do itemize, you can also generally claim qualified expenses above $250 as a deduction subject to a 2% of adjusted gross income limit.
- The optional itemized deduction for state and local sales taxes in lieu of deducting state and local income taxes is now permanent. This deduction is especially beneficial if you live in a state with no income tax. You may also benefit no matter where you live if you pay sales tax on a large ticket item such as an automobile, boat, or RV.
- When you itemize, you can treat mortgage insurance premiums as deductible home mortgage interest in 2015 and 2016. The deduction is subject to phase-out based on adjusted gross income.
- You may be able to claim a credit of 10% of the cost of energy-saving improvements installed in your home in 2015 and 2016, subject to a lifetime credit limit of $500.
- The maximum Section 179 deduction for qualified business property, including off-the-shelf software, is now permanently set at $500,000 (subject to a taxable income limitation). That means you can immediately write off up to $500,000 of the cost of assets you purchased and placed in service during the year. The deduction is phased out above a $2 million threshold. Both thresholds will be indexed for inflation beginning in 2016.
- You can treat qualified leasehold improvements, qualified retail improvements, and qualified restaurant property as Section 179 property subject to a first-year write-off limit of $250,000 for 2015. Modifications to the definition of certain real property that can be treated as Section 179 property, as well as limitations and the maximum amount available to such property, take effect after 2015. In addition, the thresholds will be indexed for inflation beginning 2016.
- The additional first-year depreciation deduction, known as “bonus depreciation,” is generally extended through 2019 when you buy qualified business property. The deduction is subject to a phase-out beginning in 2018 of 10% per calendar year, but you can deduct up to 50% of the cost of qualified property for 2015 through 2017. You can claim this deduction in conjunction with Section 179.
- The business research and development (R & D) tax credit is made permanent. The law permits eligible small businesses to claim the credit against AMT liability beginning in 2016.
- The work opportunity tax credit is extended for five years (through 2019) when you hire eligible individuals. The credit is also expanded to include qualified long-term unemployment recipients who begin work after December 31, 2015.
The remaining extenders range from such things as enhanced deductions for donating land for conservation purposes to tax credits for energy-efficient new homes.
The Protecting Americans from Tax Hikes Act of 2015 also makes changes to 529 college savings plans, such as including the purchase of computers and related services in the definition of qualified higher education expenses. The law modifies tax-free ABLE accounts for disabled individuals to allow flexibility in choosing a state program, as well as rollovers of amounts from 529 college savings plans to these accounts. The law also delays for two years the “Cadillac tax” on high cost health care plans.
Because the Act was passed so late in the year, it will be important for you to review your 2015 transactions to take advantage of applicable breaks in order to claim them on your 2015 federal income tax return. Also, with the rules now extended through 2016 (and in some cases beyond), you can begin to update your current tax plan with some measure of certainty.
Contact us for more information and for help determining which changes affect you.
Tel: (714) 522-3337
Fax: (562) 404-3126
Email: [email protected]