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Chances of Audit Continue to Drop – What you need to know
Chances of Audit Continue to Drop – What you need to know The IRS continues to use their audit department as a poster child to try to get more funding. The result can be seen in their declining audit rates. But do not be fooled. Here are the most recent IRS audit statistics for your review. You can be audited the later date of either three years after the filing deadline of your tax return or when you actually filed your tax return. However, there are two main exceptions to this rule that can extend the risk of being audited;
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Understanding Your Special K’s – 1099-Ks are now being subject to underreporting IRS audits
Understanding Your Special K’s – 1099-Ks are now being subject to underreporting IRS audits The IRS recently announced it is going to conduct automated audits of 1099-K filings against business income. This includes unicorporatated small businesses filing Schedule C with their Form 1040. How do you protect yourself from this audit risk? For the first time, the IRS is reporting that it will be comparing filed 1099-Ks against income reported on business tax returns (including those reported on 1040 Schedule C tax returns). Knowing how this impacts you can save you an unwanted IRS correspondence audit. Background A couple of
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Defending Fair Market Value
Determining the value of items on your tax return is always open to interpretation. You do not want that to happen to you during an audit as it can lead to additional tax and penalties. Here are some tips to help defend your Fair Market Value (FMV) determinations. “Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.” Source: IRS Publication 561
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Five Big Tax Mistakes – Don’t let them happen to you
Every year thousands of taxpayers go through a ”gotcha” with the IRS. A large, unexpected tax bill. Here are five common causes of tax surprises from lost refunds to retirement plan mistakes. Every year taxpayers are hit with tax surprises that could be avoided if they just knew the rules. Here are five big ones that are easy to avoid with some simple planning. Mistake #1. Withholding too little. This results in a tax surprise when filing your income tax. Don’t be too hard on yourself if this happens to you. Social Security withholdings have changed each year and new
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Audit Target: The Sole Proprietor
Often the #1 target of IRS audits, sole proprietors need to be prepared with good records. Here are some tips. Each year the IRS publishes their activities in a publication called the Data Book. And each year for the past number of years the number one target of audits are those tax returns with a Schedule C for small business activity. So how to prepare yourself for a possible audit? Here are some tips. Keep records separate. The quickest way to get a deduction for your business disallowed is to blend your personal bills with those from your business. Open
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Toss this. Not that – Post tax filing record retention
With a sigh you are relieved that yet another tax return has been sent off to the government. Another 12 months before you need to do this again. But before you close that tax file, there is still some work to do. If the IRS or state revenue department selects your return for review, you will need to be prepared. Here is what you need to know: Record Keeping Tips Normally three years. Normally tax records should be kept for three years from the later of the tax filing due date, the date you filed your taxes, or the date
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No Check! Where’s Your Proof? – What to do about your need for documentation
Very few banks return your cancelled checks. So what do you need to do if required by the IRS to prove your deductions? Often this means staying ahead of the game at year-end. Year-end is a good time to ensure you have proper documentation to substantiate your tax deductions. This is important as many banks start deleting online documentation that is over one year old. Background Two things have happened over the past ten years that have greatly reduced the ability to have a canceled check as proof when the auditor comes calling. The first is the advent of online
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