Do you know what the deadline is for your next tax bill? Unlike typical employees, business owners and self-employed individuals need to pay quarterly taxes throughout the year. To further complicate matters, not all types of businesses share the same filing deadlines for tax returns.

When Are Estimated Tax Payments Due in 2020?

Anyone who is a self-employed person serving as an independent contractor, sole proprietor, partner, or LLC member should be paying estimated quarterly taxes. Here are the due dates for quarterly taxes in 2020:

• Jan. 15
• April 15
• June 15
• Sept. 15

Don’t forget that your last quarterly payment for 2020 will be due January 15, 20201!

What Happens if You Don’t Pay Your Quarterly Taxes?

The IRS wants those quarterly taxes paid if you owe at least $1,000. The IRS will add on a penalty totaling 0.5 percent per month to any tax bill that isn’t paid by its due date. You’re also looking at an interest charge of three percent. It all adds up to being on the hook for nine percent extra if everything isn’t paid in full by April 15. 

When Are Business Taxes Due?

• Tax returns for calendar year partnerships or limited liability companies with two or more members are due by March 15 of 2020.

When Are Corporate Taxes Due?

• Tax returns for S corporations are due by March 15 of 2020. Use Form 1120-S.
  
• Tax returns for calendar year C corporations are due by April 15 of 2020. Use Form 1120.
  

When Are Personal Taxes Due?

• Tax returns for personal income tax are due by April 15 of 2020. Use Form 1040 or Form 1040-SR.
  
• Tax returns for Schedule C sole proprietorships and Schedule F farming businesses are due by April 15 of 2020.

If you don’t think you’ll be able to file your return by its due date for 2020, you can apply for an automatic six-month filing extension. Just make sure the request is filed before your return is due.

What Happens if You Miss Your Tax Deadline?

Fines, penalties, audits, and jail time could all result from not filing tax returns on time.

• You will be faced with a late fee that can total as much as 25 percent of what you owe for the year if you don’t make your deadline.
  
• Failing to file within 60 days of your filing due date will result in a minimum penalty of $210 that can go all the way up to 100 percent of the unpaid taxes you owe.
  
• Your best bet is to connect with a tax professional if you think you’ll need a filing extension this year.
  
• Getting an extension the right way can ensure that you will have more time to get everything organized without being subjected to fees, penalties, and other consequences from the IRS.

What Is an IRS Audit?

The IRS may examine the financial info and accounts of a person or organization to check for inaccuracies or discrepancies. This process is called an audit.

How Are Taxpayers Chosen for an IRS Tax Audit?

Random selection via a computer system is used to flag returns that deviate from the norm. Your return could be flagged if it involves transactions with people or partners who have been selected for audits.

How Are You Notified of an Audit?

If you’re selected for an audit, the IRS will only notify you with a paper letter via mail.

What Are the Kinds of Tax Audits?

• A mail audit will typically require you to provide additional documentation to back up a claim on your return. Submitting your proof will probably satisfy the IRS.
  
• An office audit is done at a local IRS office. You may need to provide additional documentation and answer questions posed by a field agent. Don’t forget that you have the right to bring along an accountant or representative!
  
• A field audit is conducted at your residence or business. All items on your return may be looked at.
  

What Documents Do You Need for an IRS Audit?

• Bills
  
• Receipts
  
• Canceled checks
  
• Loan agreements
  
• Logs
  
• Employment documents
  
• Insurance documents
  
• Medical and dental records
  

How Far Back Does an IRS Audit Go?

The IRS typically audits returns filed in the last three years. However, it can add additional years to an audit inquiry if major errors are discovered.

What Are Your Rights in an IRS Audit?

• The right to be informed
  
• The right to quality service
  
• The right to pay no more than the correct amount of tax
  
• The right to challenge the IRS’s position and be heard
  
• The right to appeal an IRS decision in an independent forum
  
• The right to finality
  
• The right to privacy
  
• The right to confidentiality
  
• The right to retain representation
  
• The right to a fair and just tax system

How Long Does an IRS Tax Audit Take?

Length of an audit depends on the nature of the case, how cooperative you are regarding documentation and meetings, and whether you agree with the findings. 

How Is an IRS Audit Concluded?

• “No Change” means that you have substantiated all questioned items sufficiently

• “Agreed” means that you agree with and understand the IRS’s proposed changes

• “Disagreed” means that you disagree with and understand the IRS’s changes

Possible Outcomes From an IRS Audit

You may walk away from an audit unscathed if the IRS simply needs some clarification. However, you could also face back taxes or penalties. You may need to pursue legal action to uphold your rights and avoid big losses. The bottom line: If you get audited, bring in professionals who understand how the IRS works.

The IRS may examine the financial info and accounts of a person or organization to check for inaccuracies or discrepancies. This process is called an audit.

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One of the most uncomfortable and serious consequences of having a conflict with the IRS is wage garnishment. You may be wondering if the IRS can come after your wages if you owe back taxes. Unfortunately, the answer is yes; the IRS can and will collect money from every paycheck until your debt is satisfied in full. You should know that your employer will have no choice other than to fully comply with the demands of the IRS if a garnishment is activated. This can create a very embarrassing, high-stakes situation if you rely on your full wages to cover living expenses. Keep reading to discover what to know about wage garnishment if you’re potentially facing this very serious consequence.

What Does Wage Garnishment Mean?

A garnishment is a legal standing order that instructs an employer to withhold earnings. A court order is usually required for wage garnishment in the case of loan debt or overdue child support. However, a court order is not required if the IRS wants a piece of your income. All the IRS has to do is send you a Notice of Demand for Payment as well as a Final Notice to activate a garnishment. You will have 30 days to pay your balance in full after you receive a Final Notice before garnishment becomes effective.

What Are the Types of Wage Garnishment and How Do They Work?

The IRS has a lot of power when coming after the money you earn. In fact, it can take much more via a wage garnishment than a regular creditor. A wage garnishment doesn’t just apply to hourly wages or salary totals that are earned; the IRS can and will come after any bonuses or commissions you earn during the period of garnishment.

How Much of Your Wages Can Be Garnished?

The IRS is legally allowed to take as much of your paycheck as it deems necessary to satisfy your debt. You may think you know how the garnishment process works if you’ve ever been targeted by a creditor before, but an IRS garnishment is a different animal entirely. The law puts limits on just how much a regular creditor can garnish from your wages – but the standard limits of the law do not apply in the case of an IRS garnishment. 

The good news is that the IRS doesn’t have permission to take your entire paycheck. The tax code requires the IRS to use a specific formula when calculating how much to take each pay period. You must be left with an amount of income that is deemed adequate for taking care of reasonable living expenses. However, the fact that the IRS can’t take everything doesn’t mean that it can’t take a lot of your earnings. It is actually possible for the IRS to take what amounts to 70 percent of your income through wage garnishment.

What Are Your Options When You Have a Wage Garnishment?

Most people aren’t in a position to hand over up to 70 percent of each paycheck to the IRS, and a setup like this could make it impossible for you to cover basic living expenses for yourself or your family. 

A wage garnishment is not something that you can ignore in the hopes that the IRS will forget about you. The reality is that your employer will be instructed to begin withholding some or most of your pay if you don’t act within that 30-day window following notice from the IRS. 

It’s important to know that you do have options if wage garnishment from the IRS is looming. The goal is always to get back in good standing with the IRS. This can be done by paying your full balance of owed tax or entering into some kind of IRS-approved resolution plan.

It is important to really consider whether you have the funds available to pay what you owe in full. Doing this could put a stop to the problem. Of course, it helps to seek professional assistance for tax resolution even if you do have the ability to pay your tax balance in full. Failing to handle every detail perfectly when paying late taxes could cause the problem to continue due to miscommunication with the IRS.

What if you cannot reasonably pay back what you owe to the IRS? That 30-day response window is still going to be very important even if you don’t intend to pay your balance in full to stop an IRS garnishment. Let’s take a look at the options that are on the table for stopping a garnishment.

File an Appeal

Do you disagree with the IRS’s judgment? You may want to consider filing an appeal if you do not believe you owe what the IRS claims you owe. It will be necessary to go through the process of requesting a Collections Due Process (CDP) hearing if you want to pursue this route.

Negotiate for an Installment Agreement (IA)

You may be able to stop the IRS from contacting your employer if you can get approved for an installment agreement in time. An IRS installment agreement works similarly to any other type of payment plan you might enter. You will be able to pay off your debt in chunks over a specified period of time if you successfully apply for an IRS installment agreement.

What Happens if Wage Garnishment Is a Financial Burden?

Would having a percentage held back from your wages sink you? The IRS does provide an option if wage garnishment would prove to be a serious financial burden for you. You have the option to ask for something called an Offer in Compromise (OIC). This arrangement essentially allows you to settle your tax debt with the IRS for less than the full amount owed. Getting approved for this program isn’t easy. The IRS will take a look at your current financial situation in relation to what is owed to determine if you qualify. What the IRS is essentially trying to determine is whether garnishment would make it impossible for you to meet your basic needs.

What happens if settling your debt for less than you owe still won’t leave you with enough money to live? Some taxpayers successfully obtain something called Currently Non-Collectible (CNC) status. Eligibility is usually achieved once your gross monthly income is lower than the allowable expenses determined by national standards. Taxpayers who qualify are protected from the IRS’s efforts to activate garnishments, levies, and other high-pressure collection tactics.

Help Is Available

Receiving notice that you’re facing wage garnishment is an intimidating, stressful experience. The main thing to keep in mind is that acting as quickly as possible may help preserve as many options as possible. The Tax Group Center is here to help you take action to stop wage garnishment before you lose one more dollar than you need to when dealing with the IRS. Our team of tax professionals will take a look at your situation, layout all the options for you, and move forward with a solution. We may be able to stop a garnishment in its tracks. Reach out today to get help from a team that works tirelessly, cares about our clients, and faces the IRS so you don’t have to.

Nothing about dealing with the IRS is easy when you run a business, but figuring out your obligations for payroll taxes can be especially difficult. The situation can get even more complicated when we’re talking about unpaid payroll taxes. 

The IRS takes payroll taxes very seriously. In fact, 70 percent of the annual revenue collected by the IRS comes directly from payroll taxes – and the IRS is especially aggressive when it goes after businesses that have failed to handle payroll taxes impeccably. 

Do you have questions regarding what unpaid payroll taxes could mean for your business? Find out exactly how the IRS addresses unpaid payroll taxes.

What Payroll Taxes Do You Have to Pay?

Employers have a big responsibility when it comes to making sure the correct tax totals are withheld from employee paychecks every pay period. In addition, employers must then transmit the totals that are withheld to the appropriate tax agencies. Here’s a list of an employer’s duties in regards to payroll taxes:

• Paying your share of payroll taxes
  
• Depositing the dollar amounts withheld from employee paychecks
  
• Preparing reconciliation reports to document your tax dealings
  
• Recording all payroll expenses through acceptable financial reporting
  
• Filing returns for payroll taxes
  

Employers don’t get to decide when to submit payments. The IRS maintains a deposit schedule that requires businesses to make precise payments. In addition, the IRS maintains a very tight schedule for reporting. Keep in mind that you’re not simply paying one type of tax payment – an employer has several different tax obligations when handling payroll taxes. Here’s a rundown of your obligations as an employer:

• Federal income tax withholding
  
• Social Security tax withholding
  
• Medicare tax withholding
  
• Additional Medicare tax withholding
  
• State income tax withholding
  
• Various local, city, and county tax withholdings

You must stay up to date with the tax percentages that you are required to hold back for each type of withholding. It’s important to note that these percentages can change from year to year. What’s more, there could be additional stipulations to know about when calculating how much to withhold from each employee’s paycheck. 

In short, handling payroll tax is a very heavy and serious responsibility for an employer!

Why Do Some Businesses Get in Trouble With Their Payroll Taxes?

There are many reasons a business can run into trouble with payroll taxes. Small businesses face a unique risk for delinquency due to the fact that there often isn’t a designated “payroll” department like you’d see with a large corporation. In fact, the owner of a small business is typically the person who handles payroll tax every single pay period. This is a difficult task that requires both time and knowledge of tax laws.

Did you know that an employer’s responsibility for payroll taxes continues even after paychecks are issued to employees? The biggest reason why businesses get in trouble with payroll tax is because they fail to take care of one of the many duties associated with payroll taxes. This can be anything from failing to pay the right amount to forgetting to report paid taxes correctly. 

Here’s a look at the extensive reporting requirements that fall on your shoulders:

• Annual federal unemployment tax return (Form 940 or 940EZ)
  
• Employer quarterly payroll tax return (Form 941)
  
• Annual return of withheld federal income tax (Form 945)
  
• Wage and tax statements (Form W-2)
  

Many business owners simply forget to make tax deposits by their due dates because they are wearing so many hats. Of course, business owners sometimes knowingly put off handling payroll taxes because they are in a desperate situation. It is not uncommon for business owners to “borrow” from payroll tax funds during lean times just to keep the business going. Issues like natural disasters or a change in your depositing schedule can also lead to unpaid or unreported payroll taxes. Both purposeful and accidental errors can land a business in hot water with the IRS.

Personal Liability for Payroll Taxes

A business owner can certainly be personally liable for delinquent payroll taxes. The Trust Fund Recovery Penalty (TFRP) enables the IRS to go after individuals when businesses fail to pay payroll taxes. The consequences of the TFRP are particularly harsh because the IRS is empowered to seize assets and force a business to close. What’s more, the TFRP can be applied in addition to any criminal or civil penalties a person faces. Even bankruptcy can’t make it go away.

Anyone who functions as a corporate officer or “responsible party” is seen by the IRS as being liable for unpaid payroll taxes. Unfortunately, you could still be liable even if you’ve outsourced payroll duties to a third-party company. The IRS can assess penalties and interest on your account if that third-party company fails to make payments on your behalf.

What Are the Penalties for Not Paying Payroll Taxes?

There is no hiding the fact that your payroll payments are missing or late when it comes to the IRS. Once payroll taxes are overdue, you can expect high penalties pretty quickly. Here’s a look at the penalty schedule:

• 2 percent when a payment is between one and five days late
  
• 5 percent when a payment is between six and 15 days late
  
• 10 percent when a payment is more than 16 days late
  
• 15 percent for additional lateness
  

Keep in mind that these are just the percentages you’ll be responsible for on top of whatever you already owe. Your failure to handle payroll taxes correctly could result in a full-scale investigation that examines all aspects of your company’s tax dealings. This could result in asset seizure, the shuttering of your business, and jail time. A criminal investigation for fraud could change your life irrevocably. 

Don’t let it go that far. Start exploring options for mending unpaid payroll taxes immediately.

What Are Penalty Exemptions?

You should know that penalties aren’t always automatic just because you’ve fallen short when it comes to your payroll tax obligations. However, navigating the landscape of exemptions for unpaid payroll taxes should be done very carefully. Is it possible to have payroll tax penalties waived? You may be able to have penalties waived if you can prove that your lapse is justified by reasonable cause. This means that you were unable to take care of your tax obligation as an employer due to circumstances that were beyond your control. This often includes things like fires or natural disasters. It will be up to you to present your case to the IRS in a way that proves you did everything possible to handle your payroll tax obligations.

You may also be able to receive a penalty exemption based on statutory or administrative waivers. This means that you can prove that a dramatic or sudden change regarding laws or regulations caused you to be unable to carry out your full obligation. This can include retroactive changes regarding how to calculate or deposit payroll taxes. In addition, confusion regarding compliance obligations could qualify you for a penalty exemption. It will be necessary to submit a letter to the IRS stating your predicament. It is possible that you’ll receive an administrative waiver automatically.

How Can You Avoid Penalties?

It is important to understand that the IRS views failure to submit payroll taxes as a form of theft. This is because you are holding on to money that never belonged to you. If the IRS is coming after you for unpaid or unreported payroll taxes, the best thing you can do is act quickly. The escalating. We’ll explore your options for getting interest and penalties waived. In addition, we can help you come up with a plan to make sure the right amount of payroll tax is paid to the IRS as soon as possible. The Tax Group Center has a team of lawyers, CPAs, and licensed tax professionals waiting to help you. Reach out today to get started with clearing up your payroll tax predicament.

If you’ve been notified of an impending tax lien by the IRS, the last thing you want to do is ignore the problem. What does a tax lien mean for your future? What happens next will depend largely on your ability to act quickly.

What Is a Tax Lien?

A tax lien refers to the IRS’s right to take possession of property belonging to a person until an outstanding debt is discharged. You should know that there’s no shielding certain assets when you’re facing a lien – it attaches to all of your eligible assets by default. That means that everything from your car to your savings will be targeted. Of course, lien activity isn’t limited to the IRS. State, city, and county-level government bodies can all enforce liens. A lien protects a government entity’s legal right to money or property if you do not pay taxes that are owed. A lien can be used to collect state taxes, income taxes, and back taxes of any form. Here are the three steps that can activate a tax lien:

• The IRS assesses your tax liability
  
• The IRS sends you a bill explaining how much you owe in the form of a Notice and Demand for Payment
  
• You refuse or neglect to pay the full debt amount in time
  

What comes next? The IRS will move forward with filing a public document called the Notice of Federal Tax Lien. This document alerts creditors to the fact that the government has a legal right to your assets and property. 

How Does a Tax Lien Affect You?

An unaddressed tax lien can make it hard to stay in control of your finances for the foreseeable future. There is some good news: tax liens no longer appear on credit reports. Still, that doesn’t mean you’re totally in the clear. The IRS has the option to file a public notice that will let creditors know that the government has a right to your property. 

What does that mean for you? A tax lien could very easily sabotage your efforts to obtain loans or financing in the future. Things like purchasing a home or starting a small business could be off the table if there’s a lien in your history.

You can still encounter financial headaches from a lien even if you already have a home. In fact, a lien could make it difficult or impossible to refinance or sell a home – there’s a good chance that a tax lien will pop up during a title search for a property.

The scariest consequence of all when it comes to a tax lien is that the lien could escalate into a tax levy. A tax levy allows the government to begin the seizure process. Your home, car, bank accounts, property, and paychecks are all on the table once a levy has been initiated. Of course, all of the negative consequences of a tax lien can potentially be avoided if you work quickly with a tax professional to mitigate the situation.

Tax liens can be applied to both individuals and businesses – in the latter scenario, a tax lien attaches to all property that belongs to a business. Even accounts receivable will be subject to a lien! Fortunately, tax lien help is available for both individuals and businesses.

What Are Your Options When You Have a Tax Lien?

You should never just close your eyes and ignore a tax lien! Acting quickly is often the only thing that stands between you and a full seizure of your property and assets. Even filing for bankruptcy won’t necessarily stop a lien – a federal tax lien can continue even after bankruptcy. Of course, you do have options for taking care of a tax lien in a way that satisfies the government. The big thing to keep in mind is that showing a willingness to work at paying what you owe will often be enough to keep the IRS from enforcing severe penalties. 

You have to be willing to follow the IRS’s rules when developing a strategy for clearing up the problem if you want to walk away with the best possible outcome. Here’s a rundown of some of the popular options that are on the table when fighting tax liens:

• Payment in full
  
• Offer in Compromise (OIC) may allow you to settle your tax debt for less than you owe
  
• An Installment Agreement may allow you to settle your debt using a fixed payment plan
  
• A 60-day or 120-day payment extension could be granted if you simply need more time to come up with the funds to pay off your tax debt
  
• Currently Non-Collectible Status (CNC) could apply if you cannot reasonably pay off your tax debt while taking care of living expenses
  
• Personal loans can sometimes be used to pay debt and interest

You may also want to explore the possibility of filing an appeal if you disagree with the IRS’s assessment of your tax obligation. The IRS Office of Appeals oversees cases where taxpayers feel that liens have been applied erroneously. This is a situation where knowing exactly how the IRS operates its appeals process can work to your advantage, and the Tax Group Center will move forward with an eye on options for penalty abatement that can save you money and prevent harsh consequences.

There is really no one-size-fits-all answer, as every option for clearing up a tax lien comes with its own list of pros and cons. You could still be on the hook for interest and fees in some cases. However, there’s also a chance that you could have penalties waived if you handle the situation correctly. Your outcome is going to depend on your willingness to act quickly, your understanding of how the IRS works, your financial standing, and your ability to negotiate. The big thing to remember is that you will be doing yourself a big favor if you get the ball rolling on a solution before your manageable tax lien turns into a very problematic tax levy.

How Should You Address a Tax Lien?

Don’t wait until the government is coming after your home, draining your bank account, or siphoning money from your paycheck to take action. The team at the Tax Group Center is here to help you explore options for taking care of your tax lien as quickly and easily as possible. We’ll work with you to create a custom plan of action based on the specifics of your situation. Our team is here to help you clear your tax debt without facing big penalties or interest charges. The Tax Group Center has been helping taxpayers clear up issues with the IRS for 30 years. We’re an industry-leading company because we use the expertise of lawyers, CPAs, and licensed tax professionals to handle tax issues from all angles. Reach out today if you need help with a tax lien!

An IRS audit can be an anxiety-producing event. One factor that makes the idea of being audited by the IRS so intimidating is uncertainty, as the average taxpayer isn’t very experienced in dealing with the IRS. What’s more, it can feel like the IRS holds all the cards when it comes to what you must do next. 

It is important to understand what happens when you get audited by the IRS. Let’s take a look at what may be in front of you.

What Is an IRS Audit?

An audit occurs when the IRS takes a deeper look at the information on your tax return. This may be as simple as the IRS requesting some documentation regarding a figure or calculation. However, it could turn into a full-scale investigation that stretches back many years into your tax history. 

That 30-Day Window

You have 30 days to respond to a notice from the IRS if you disagree with what is written on the audit letter you receive. You are responsible for responding with any documentation or proof that could support your position. It often takes the IRS 30 days to respond to response letters.

Reasons Why You Might Be Audited by the IRS

It is entirely possible to be selected at random by the IRS. However, almost all audits result from red flags that are highlighted using the IRS’s special software, which spots errors or suspicious items on tax returns. 

Here are the factors that often trigger audits:

• Math or data entry errors

• Unreported or underreported income

• Unusual or excessive deductions

• Erroneous claims for dependents

• Incorrect filing status

• Affiliations with people or entities currently being audited

• Discrepancies of any kind

Self-employed people are at higher risk for audits. What’s more, businesses that report losses for several consecutive years have a harder time flying under the radar of the IRS. Of course, receiving a letter from the IRS doesn’t mean that you’ve intentionally done something wrong. 

Knowing how to respond and move forward when facing an audit can make all the difference! The big thing you should never do is ignore an audit letter. Ignoring a letter is essentially agreeing to waive all your rights. The IRS will have the ability to make changes to your return, impose taxes and penalties, and begin collecting anything that you owe using any and all legal means available if you fail to respond.

The Steps of an IRS Audit

What happens when you get audited by the IRS? An audit starts with that infamous letter that arrives in your mailbox. However, not everyone will have the same audit experience, as the IRS conducts three different types of audits. Here’s a look at them:

Mail Audits

The majority of IRS audits are mail audits, or letter audits. The IRS uses mail audits to request proof regarding specific items on returns. You will receive a letter from the IRS identifying the specific issue in question; you may also receive a form for you to fill out with your reply. You will have 30 days to respond with documentation of your position, such as receipts, invoices, and so on. Assuming the IRS accepts your position, most mail audits are over within a few weeks. 

Office Audits

Office audits typically involve more than one portion of your tax return. You’ll receive a letter outlining what is under review along with a request from the IRS for a face-to-face meeting. It is highly recommended that you utilize the help of a qualified tax professional before your appointment with the IRS to ensure all of your rights and options are explored. Before your appointment, gather all the necessary documentation, including any electronic bookkeeping records. Consult with your tax professional and make sure you only bring  what you need to document your position. During the office interview, answer any questions directly and succinctly. Do not provide the auditor with more information than is absolutely necessary. The good news is that most office audits wrap up within three to six months. 

Field Audits

A field audit is a serious, comprehensive audit. Your home or office may even be visited during the audit. Before the IRS agent shows up, make sure you have your books and receipts ready and organized for their review. It’s critical to have a good representative working on your behalf if you’re facing a field audit. As with an office audit, answer any questions as succinctly as possible. Make sure your tax professional is with you during the field audit and feel free to consult with or refer to them if you are unsure of how to answer. Many field audits can take up to a year, but you can speed this along by hiring professional help and responding quickly to all requests from the IRS. 

The one thing that all audits have in common is that the IRS is looking for documentation and paper trails. In fact, coming up with documentation to submit to the IRS will make up the bulk of your role in an audit. The IRS typically completes an audit within a few weeks or months. However, the IRS technically has up to three years to conduct an audit.

How Is an IRS Audit Concluded?

There are three ways that an IRS audit can end. The IRS may find that no change is necessary. This means that you have satisfied the IRS’s attempt to substantiate every item that was placed under review. The IRS can also propose changes based on any inaccuracies or discrepancies that are found. You have the option to accept or contest any proposed changes. You will be asked to sign an agreement form if you do agree. However, this may require you to pay money that is owed. You also have the option to disagree with any proposed changes. It will then be necessary to take action by requesting a meeting with an IRS manager or appeals officer. You can also file an appeal via a formal written protest. This is where working with a tax professional is going to be extremely important.

What should you do following an IRS audit? This is a period that will be really important for exploring the options for appeal that are available to you if you disagree with the verdict of the IRS’s audit. You may still have work to do if you agree with the changes that are proposed. It is likely that proposed changes from the IRS could leave you owing money. That means you may need to explore options for payment plans or exemptions that will help you to avoid penalties.

Are You Facing an IRS Audit?

That critical window for responding to an audit notice can shape the audit process. The Tax Group Center is here to provide support and representation from the start. We have a team of certified tax consultants, tax attorneys, CPAs, and enrolled agents who deal with the IRS on a daily basis. We understand the blueprints of an audit. Our 30 years of experience and passion for helping our clients find the best solutions possible make us a top choice among people facing audits.

It’s never a good day for an Internal Revenue Service (IRS) audit, and it’s normal to feel nervous if a letter arrives from the IRS. However, there are two important things to know if you have audits on your mind. The first is that you do have options to help you avoid fines and penalties if you are audited. The second is that you may be able to avoid an audit in the first place if you know about the common IRS audit triggers. 

What Is an IRS Audit?

An IRS audit is a review or examination of the accounts and financial information of an individual or organization that is conducted to ensure that all reported tax information is correct. The first step the IRS takes is to ask for additional information or clarification regarding an item on a tax return. What happens next depends on what sparked your audit, the type of documentation you provide, and the determination that’s made by the IRS agent assigned to your case.

Why You Need to Be on the Lookout for Common Audit Triggers

The big thing to know is that the IRS doesn’t select the tax returns that are to be audited by hand. Additionally, only a very small number of tax returns are actually chosen for audits at random. The IRS relies on a computer system to highlight returns that contain errors or suspicious numbers, or otherwise raise questions. The bottom line is that you aren’t going to be able to outsmart a computer system. This is why knowing exactly what will cause the IRS’s computer system to single out your return is so important.

The Nine Common IRS Audit Triggers

The good news is that you’ll probably be in the clear if you make less than $200,000 annually. In fact, less than one percent of all IRS audits are done on returns that claim incomes of less than $200,000. Of course, that doesn’t mean that you’ll totally avoid the radar of the IRS if you don’t have a huge income. Keep reading to learn about the nine notorious audit triggers.

Math Errors

Unfortunately, making a simple math mistake can get the IRS on your back. The IRS uses programs that review math calculations on tax returns, and any numbers that don’t quite add up the way they should can be flagged for review. Even something as simple as a Social Security number that’s off by a digit can trigger an audit. Take your time, be precise with your math, and have someone else check your numbers before you submit your return.

Round Numbers

Does it seem like all of the numbers on your tax return are ending in zeros? The IRS probably isn’t going to like that. Numbers that seem too rounded can trigger an audit because it looks like you’re trying too hard to make everything add up nicely.

Unreported or Underreported Income

The IRS receives copies of your W-2s and 1099s each year, and it has a system that automatically compares the earning data it receives against what you report on your tax return. Any discrepancies are likely to trigger an audit. It is extremely important to have any errors that you spot on your 1099 addressed and corrected before you file your taxes!

High Incomes

Did you have a windfall year? The IRS may want to know more about it! A high income can increase your odds of being audited. In fact, about half of all of the audits that take place each year involve people who earn more than $1 million.

The Home Office Deduction

Few things excite entrepreneurs as much as the home office deduction. However, taking advantage of this tax perk could potentially pique the interest of the IRS and increase your odds of being audited. That’s why it’s so important to make sure all expenses related to your home office are properly documented. Keep in mind that having a television or dining table in your designated office area could make it hard to prove that you’re following the rules.

Claiming a Business Vehicle

Does your tax filing show that you use a specific vehicle for business 100 percent of the time? Unfortunately, the IRS doesn’t always buy this claim. The IRS knows that it’s pretty rare for someone to use a vehicle exclusively for business purposes. What’s more, not having another vehicle registered to your name can really raise some red flags. The solution is to keep very detailed records to prove that you’re using your business vehicle exactly the way you claim.

Excessive Deductions

A return that features lots of deductions could attract the eye of the IRS. This doesn’t mean you should avoid honest, valid deductions – you just need to be extra vigilant to ensure any deductions you take are truly connected to your business. A qualifying purchase should be common, accepted, and useful in whatever industry you operate in professionally.

Filing a Schedule C

You may have to file a Schedule C if you own a small business. Unfortunately, this could put you in the hot seat. Be smart about maintaining proper documentation for every claim if you’re filing a Schedule C.

Losing Money

A business that loses money consistently could raise suspicions. The IRS knows that some people try to write off money that is spent on hobbies by claiming that the costs are related to a business. The IRS may verify that your business really is a business if you seem to lose money every year.

What Should You Do If You Are Audited?

What happens when that audit letter from the IRS arrives in your mailbox? Don’t ignore it – this is a problem that won’t go away on its own. You may be asked to answer questions or schedule a visit from a field auditor. 

Whether you’re facing a field audit or an in-office interview, don’t handle it alone. You should bring a CPA to help you. If you don’t have a CPA, it’s time to get one. Before the interview or field audit, consult with your CPA to help you gather and make copies of all the documents you will need. 

You may be wondering just how much you have to comply with what is requested, or if there’s a way to appeal your audit. The truth is that the audit process is complicated, and you risk penalties, fines, and other negative consequences when an IRS audit takes you by surprise. 

Tax Group Center is here to make sure you don’t have to go up against a big agency all by yourself. We work directly with the IRS to save you hours of stress because we speak the language of the IRS. Our team of tax professionals has already helped thousands of people handle tax issues. Call us today to receive expert advice for handling your IRS situation.

Nobody wakes up in the morning hoping that a notification letter from the Internal Revenue Service (IRS) is waiting in the mailbox. However, the reality is that IRS data shows that close to one million Americans are subjected to tax examinations each year. The good news is that understanding how the audit process works can help people avoid audit triggers, understand their rights, and respond properly if and when audits do happen. Take a look at what every taxpayer needs to know about IRS audits.

What Is an IRS Audit and Why Is Someone Typically Selected?

The IRS has the right to audit the tax returns filed by all businesses and individuals. An audit is a closer examination of a tax return that has been filed, though it is not an indictment of any kind regarding the accuracy or legitimacy of that tax return. You don’t have to be a millionaire, mogul, or a high-profile person to be the subject of a tax audit.

Of course, most people will breeze through life without ever receiving a notice for an audit. Others are not so lucky and may even end up owing the government money. What could potentially trigger an audit for a specific person or business? Several factors are in play when it comes to how and when IRS audits are triggered.

The IRS uses “red flags” that are spotted on tax returns to decide which returns will be audited each year. This means that anything that appears to fall outside of the ordinary could trigger an audit. For instance, a return that shows a low-income level with high deductions could result in an audit notice. 

Here are some common factors that trigger audits each year:

•     Math mistakes
      
•     Numbers that appear too “neat” or “round” throughout a return
      
•     Unreported income
      
•     Early withdrawals from retirement funds
      
•     Higher than normal charitable deductions
      
•     Higher than normal work-related deductions
      
•     Broken rules for foreign accounts
      
•     Incomes higher than $200,000
      
•     An unusual number of dependents
      
•     Overlapping tax associations with people or businesses that have been audited
  
  

Owning a small business or shares in a limited partnership can also increase a person’s odds of being audited. 

Keep in mind that the IRS doesn’t scan tax returns by hand to spot oddities; instead, it uses a computer system designed to spot areas of concern on returns. This system is called the Discriminant Information Function (DIF). Nobody is safe from the DIF – every single return received by the IRS is scanned through it. In addition to scanning information, the DIF is capable of comparing returns from different taxpayers to pinpoint inconsistencies.

How Are You Notified of an IRS Audit After You File Your Taxes?

The IRS notifies taxpayers of audits exclusively by mail. This means that any notification you receive by phone or email is probably part of a scam. An IRS notification letter typically asks the recipient to answer specific questions or explain the details of a tax return. Here are some characteristics of a genuine audit letter from the IRS:

•     It arrives via certified mail
      
•     It contains the taxpayer’s correct name
      
•     It contains the taxpayer’s taxpayer number
      
•     It contains an employee number
      
•     It has a form number
      
•     It provides contact information that a taxpayer can use to reply to the IRS
  
  

Remember that an IRS representative will never demand instant payment of owed taxes, and that a request like that could be a sign of a scam. Every taxpayer has the right to receive courteous treatment from IRS agents. In addition, taxpayers have a right to know why the IRS is asking for information, how that information will be used, and what the consequences will be if a taxpayer refuses to provide information.

What Is the Audit Timeline?

The specific timeline of an audit will depend on numerous factors. Agency backlogs, appeals, and the complexity of a particular audit all play roles in determining the length of the audit process. The life cycle of an audit is rarely more than a few weeks, but the IRS technically has up to three years to complete a full audit. 

Quickly answering all correspondence from the IRS can help ensure that the audit process does not get drawn out. Interest can continue to add up during the length of an audit if a taxpayer has a delinquent tax. In short, longer audits can cost extra money for people who owe taxes.

It is important to know that tax audits are not exclusively conducted for just the previous year. Audits are typically triggered within two years of a return being filed, but the IRS can go as far back as six years when pulling tax returns for auditing purposes.

How Is an IRS Audit Conducted?

The IRS uses several methods to conduct audits. Some people who are audited go through correspondence audits. This means that all forms, supporting documents, and necessary payments are exchanged through the mail, and no in-person meeting is required.

However, the IRS may decide to conduct an audit through an office or field audit. An office audit requires the person being audited to meet with an IRS representative in person at the nearest IRS office for an interview that typically involves answering questions and providing supporting documentation. A field audit means that an IRS agent will visit the person being audited at their home or place of business. 

What are the major differences between a correspondence audit and an office or field audit? A correspondence audit typically focuses on one specific error or issue within a tax filing. An in-person audit, however, occurs when the IRS has a number of questions regarding what is contained within a tax return. The in-person interview scheduled during an office audit is often used as a time for agents to gather supporting documentation and clarify questions about the filing. The general recommendation is that a person should not attend an audit interview without an authorized tax representative to provide support. A field audit, on the other hand, will involve an IRS agent coming to the audited person’s home or place of business, or wherever the relevant records are kept. Field audits are usually conducted when the IRS suspects fraud or has more serious questions about the legitimacy of a tax filing and must gather on-the-ground information. 

How Do You Avoid Getting Audited by the IRS?

The fact of the matter is that it’s impossible to be fully inoculated against IRS audits. A small percentage of audits are done totally at random. However, most audits are triggered by “red flags” that can be avoided. The easiest way to avoid an IRS audit is simply to file honest, accurate returns. Don’t forget that simple mistakes like incorrect calculations or failing to sign a return can increase the odds of an audit.

If you think your tax return may contain some of the red flags that trigger audits, it’s wise to get ahead of the problem. You can and should provide explanations for any details that could look problematic. Including receipts with a return is a smart way to provide documentation. You can also submit extra forms and worksheets with a return to clarify why some numbers look the way they do.