Posted on

What Happens When You Get Audited by the IRS?

tax audit

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.

Posted on

A Look at Common IRS Audit Triggers

Tax Audit Triggers

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.

Posted on

How You Are Notified of an IRS Audit

IRS audit

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.

Posted on

Why do so Many People Fall Behind on Their Taxes?

There are very few sure things in life. Taxes cannot be avoided. Despite the definitive, many people still find themselves owing the government thousands of dollars. They might go for years without paying a single, tax dollar. Penalties and late charges add up into astronomical figures. It’s only natural to ask why people fall behind on their taxes. Take an in-depth look at society and its relationship to taxes so that you have a better understanding.

Lack of Funds

People run into tax problems when they don’t have the funds to cover the amount. They might feel shame or frustration. Paying for everyday basics, such as groceries, may be the biggest concern. The taxes are put on the back burner until better days arrive.

If you’re having a cash-flow problem, speaking directly to the IRS or Internal Revenue Service is your best course of action. They can create a payback schedule that works with your budget. Paying no taxes at all will only compound the problem.

Forgetting to File

Although it may seem implausible, some people do forget to file their taxes. These individuals might work abroad or at charitable institutions. They don’t intend to skip one or two years of tax payments. The time frame just got away from them.

Forgetting to file your taxes isn’t an excuse, however. The government will collect the funds at some point. It’s always a better idea to pay the taxes as soon as they’re recalled to memory.

Failing to File

It’s possible that some adults don’t know if they should file taxes in the first place. Owing taxes can be a confusing situation. Your job probably withholds a certain amount from each paycheck. Thinking that the taxes are covered and no filing is necessary can happen.

Most full-time workers must file their taxes. It’s a federal law that’s upheld in a court of law.

Dealing with Extenuating Circumstances

People fall behind on their taxes because of a few, common situations, such as:

• Death in the family
• Divorce
• Unemployment
• Illness

These extreme circumstances make it difficult for taxpayers to remember the filing date or to follow the forms’ instructions. They may not be physically able to complete the forms either. Ideally, the taxpayer should seek out professional help so that the funds are covered as necessary. At that point, they can focus on their extenuating circumstances.

Being a Cosigner

A specific instance where a taxpayer has trouble paying their owed taxes is when they’re assigned as a cosigner. You may have cosigned a loan with a loved one. The family member can’t pay back the loan so it’s now your burden to bear. All of your funds, as a result, are funneled to this loan.
If you owe taxes, there’s no money to allocate toward them. Your paycheck might be under garnishment too.

Becoming Too Busy

Falling behind on your taxes may be a case of a disorganized lifestyle. You don’t have the time to fill out the forms or figure out the credits. Throwing up your hands in frustration and scrapping the entire process is an excuse shared among many people. These adults must change their perception of taxes and pay them as needed. They’ll only save themselves from frustration in the end.

Mistaking Credits on Tax Forms

There are hundreds of credits and exceptions on a standard, tax form. Some people might be overwhelmed at the selection, and they end up choosing a credit that they don’t qualify for in the first place. These taxpayers end up filing the forms, but they end up owing more taxes in the process.

Mistakes on tax forms can cost taxpayers dearly. Professional help might be the safer route to take.

Misunderstanding Estimated Tax Payments

If you’re a self-employed person or run a business, paying estimated tax payments is part of your financial world. Every quarter, you send a check payment to the government to cover your taxes. However, some taxpayers don’t understand their estimated payments. They may underpay them or forget altogether. The government will request the funds if they aren’t paid by the due dates. Business owners may want to consult their accountants to verify which payments are currently due.

Confusing Withholding Structure on Paychecks

The simplest way to pay your taxes through the year is by withholding them in a paycheck. You never see the funds. They’re simply tucked away for the government’s use. Be sure that you’re withholding enough funds to cover your taxes. Filing a form with your employer can make the process a simple one. You can withhold any amount that you desire.

Working With Tax Group Center in the Event You Fall Behind on your Taxes

If you haven’t paid taxes or received a bill in the mail, you need to deal with the situation as quickly as possible. Tax bills won’t vanish overnight. You must pay part or all of the taxes owed. They must be paid in a reasonable amount of time.

Tax help is right around the corner. Tax Group Center offers a mixture of both tax preparers and lawyers. We understand the legalities behind unpaid taxes. Our tax professionals work directly with the IRS to defend your position. We also protect your rights so that the repayment agreement is within your income bracket.

Your taxes pay for core services in your neighborhood, from paving roads to supporting the fire department. Consider your taxes as funds toward a better tomorrow. Paying them helps everyone with a better life than before.

Posted on

How to Resolve a Tax Debt When You Can’t Pay

Every year, Americans must submit an income tax return along with any taxes that they may owe. However, there may come a time when you can’t afford to pay a balance owed for any variety of reasons. For instance, a sudden job loss or an unexpected medical bill could make it impossible to pay the IRS on time. Fortunately, there are ways to resolve the situation in a manner acceptable to the government.

Ask for an Extension to File

The first step that you can take is to ask for an extension to file your taxes. While this doesn’t give you an extension to pay taxes owed, the penalty for failure to file is much larger than failing to pay your taxes. If you have paid at least 90 percent of your estimated taxes, you may not be subject to any additional penalty. The same is generally true true if you owe less than $1,000. This extension is available to all taxpayers with no questions asked, and it will not increase your odds of being audited.

Ask for an Installment Agreement

If you still don’t have enough money to pay your taxes by October, it may be possible to ask for an installment agreement. The agreement gives you another 60 to 120 days to pay whatever balance that you owe to the government. However, if you fail to pay the balance in full, the government could take steps to garnish your wages or put a lien on assets.

Make an Offer In Compromise (OIC)

An OIC is your way of telling the government that you have no way to pay your past due tax balance in full. Like any other creditor, the government would rather have some of its money rather than nothing at all. Therefore, if you can show that you legitimately don’t have assets to sell or access to credit to make payments, the IRS will take less than what is owed.

The extent to which the agency will forgive that debt depends on the specific circumstances in your case. It is worth noting that you should make a serious offer that you intend to follow through with in good faith. The IRS is likely to reject a frivolous offer or one that doesn’t adequately reflect your ability to pay.

Pay With a Credit Card

The IRS does allow you to pay taxes with a credit card. This is done through third-party payment portals that you can access from the IRS website. There are service fees that you will need to pay on top of the balance owed. However, these fees can be deducted from your tax return. It is important to note that tax debt is rarely discharged in bankruptcy court, and putting a tax payment on a credit card won’t change that.

Pay Whatever You Can

If you can’t pay the full balance on time, you can choose to make a partial payment when filing your return. While interest will still accrue on the outstanding balance, which means that you want to pay the rest of what you owe as soon as possible. However, making a payment or payments in good faith increases the odds that the government will hold off on levying harsher penalties.

Consult With a Tax Expert

A tax professional may be able to help you decide the best course of action if you are unable to pay your taxes for any reason. He or she could help you craft an OIC that the government is likely to accept. If your adviser is an enrolled agent, he or she could also negotiate on your behalf with the IRS to help reduce the amount that you owe. Negotiating with the federal tax authority could also reduce the odds of a lien or wage garnishment. In some cases, it is possible to have interest or other fees waived or reduced to make it easier to pay an outstanding balance.

Ideally, you will plan to have enough money withheld throughout the year to avoid being in debt to the IRS come tax time. While owing the government money can be a stressful situation, there are ways to settle your debt in a timely and convenient manner. Understanding those options can prevent your wages from being garnished or assets seized by the IRS.

Posted on

The Secret to Organizing Your Finances

While organizing just about anything in your life can become a daunting task, there are some that can truly change the way you live. The organization of your finances can help you and your family stay on budget, pay bills on time and do your taxes quickly, just to name a few. The professionals at Tax Group Center have learned a thing or two when it comes to organizing finances and we’d like to take some time to share a few tips.

Now the truth is, there really isn’t any “secret” to organizing your finances. You may find that the most difficult part is building up the courage to drag out that old shoe box or that dusty stack of papers in the corner. The rest of the organization of finances is all about a method to the madness.

The first thing you’re going to want to do is to create folders or stacks by category. Here is a list of recommended categories that we find to be effective:

  • Tax returns
  • Bank statements
  • Income
  • Personal
  • Housing
  • Transportation
  • Medical
  • Other

If you have printed copies of your tax returns from previous years filed, such as form 1040, this is a great piece to keep on file. Keeping track of how you filled out your previous tax return can help save you time and effort. However, keep in mind that tax laws regarding credits, for example, can change, not to mention your income and assets.

Bank statements are great for keeping track of your account balances, credit card history, money market accounts and more. It’s best if you can organize this category further by date, keeping the most current statement on top. For the purposes of applying for a tax resolution program such as the Offer in Compromise, you’ll only need bank statements for the last three months.

Income can be tracked by retaining copies of your pay checks/pay stubs. Again, for the purposes of applying for a tax resolution program, it is recommended that you keep copies of the last four consecutive pay stubs/pay checks.

The personal category applies to personal expenses such as grocery receipts and other types of personal care. Tracking your personal expenses will give you a better idea of how your money is being spent and from there, you can determine if you have room to cut back or increase your spending. Personal expenses are also factored in when determining the right tax resolution program.

Another important expense that may want to consider tracking is that of your housing. This would include a copy of your mortgage statement, utility bills, apartment contract, etc. If it’s related to your immediate living arrangement, include it in your housing section. Creating sub-sections for this may be necessary if you have several kinds of documents.

Transportation is another important expense we recommend you to file. You may want to create subfolders for gas/maintenance receipts, insurance or even public transportation tickets. The IRS uses National Standards when determining your transportation expenses for a tax resolution program. You can find out more by visiting www.irs.gov or call a Tax Group Center representative.

For the medical category, be sure to keep information on file regarding your health insurance and out of pocket medical costs. You may also find it useful to keep track of your hospital bills and pharmacy receipts. If you are seeking penalty abatement due to an illness or injury, the documents in your medical category will be used as proof in your case.

Finally, we have included everything else into one remaining category known as “other”. You may find that your unique financial situation calls for several additional categories as opposed to just one. The other category contains any other expenses and assets that you will need to access. Assets may include life insurance policies, mutual funds, stocks or 401(k). Expenses would be things like alimony, court ordered payments, or child support.

Now that you have all of your documents organized into categories, it’s time find something that will keep them all together. If it’s all you have, it’s okay to place them back in that old shoe box, just as long as you keep your documents separated by categories. You can do this using paper clips or separating sections with post-it notes. If you have some room or extra cash, it’s highly recommended that your purchase a small file cabinet or even just a 3 ring binder with dividers. You can even take your organization digital by entering your financial information into an Excel spreadsheet or other personal finance program.

Posted on

Filing an Individual Tax Return

When filing an individual tax return, use the correct version of the IRS 1040 forms. It is essential to educate yourself about income restrictions and report all earned income.

Report All Income Sources

The main sources of income to be reported on an individual tax return are:

  • Wages, Salaries, Tips
  • Self-Employment Income
  • Interest

These are additional, common sources of income that also need to be reported:

  • Dividends
  • Capital Gains
  • Unemployment
  • Pensions
  • Social Security

Beyond the most common sources of income, here are some additional sources that must also be reported with your income:

  • Advances
  • Bonuses and awards (i.e. vacation trips awarded for meeting sales goals)
  • Severance pay

1040 Forms for Individual Taxes

If you are an individual filing taxes, be sure that you know about the 1040 series of income tax return forms, what each of these IRS forms are for, and when to use them.

  • Form 1040 (“long form”) is the basic IRS form which is used by individuals to report their income to the IRS.
  • Form 1040A (“short form”) is limited to taxpayers with taxable income below $100,000 who take the standard deduction instead of itemizing deductions.
  • Form 1040EZ (“easy form”) is limited to taxpayers with taxable income below $100,000 who take the standard deduction and have no dependents.
  • Form 1040-X is specifically for correcting mistakes on 1040 forms. There is a section to reference the amounts on your original IRS return and a section to correct your mistakes.
  • Our team of CTEC Certified Tax Consultants, Tax Attorneys, CPA’s and Enrolled Agents at Tax Group Center provide tax preparation services for individuals including:
  • Form 1040, 1040A, 1040EZ, 1040EZ-T, 1040NR and 1040NR-EZ, 1040X
  • Schedules A, B, C, D, E, F, H, J, M, R, SE

If you need help preparing your tax returns, call Tax Group Center at:  (877) 605-7635.

Posted on

The Business Taxes Every Business Owner Needs To Know About

Business owners have responsibilities to the IRS and State beyond filing their personal income taxes; they must also pay business taxes on behalf of their company. Just as individuals sometimes have difficulty paying their income taxes to the IRS/State, businesses owners, both large and small, are sometimes in need of business tax services and business tax return filing.
Here are some types of business taxes for which employers are responsible:

  • Self-Employment Tax – This tax is for people who work for themselves (such as independent contractors).
  • Payroll Tax – This tax is for business owners who pay employees.  It is the federal tax withheld from the wages of employees that must be paid to the government.
  • FICA Tax – This is the Social Security and Medicare tax that is withheld from employees.  It is paid to the government along with the payroll taxes.
  • Sales Tax – This is paid by retailers and sellers of tangible goods.  This is usually collected at the time of the sale.  People see this type of tax every day when they purchase goods
  • Estimated Tax – If you expect to owe $1,000 or more when you file, you must make quarterly estimated tax payments to cover the tax you expect to owe.  Also, if you owed tax in the previous year, you are required to make estimated tax payments.
  • Keeping current with your business taxes is vital for any business owner.  Penalties for incorrect or late filings on corporate taxes can add up quickly and put your business in jeopardy.  Make sure you are working with a qualified tax advisor who provides you with high quality business tax services.  If you find yourself having difficulty paying your business taxes to the IRS/State, contact Tax Group Center today, at: (800) 264-1869.
Posted on

Important IRS Forms for Business Taxes

Starting and running a successful business is challenging enough. Keeping track of all the forms you need to file with the IRS/State to qualify for business tax deductions and to stay current on your corporate taxes can be overwhelming. Not to worry, we’ve highlighted the key tax forms you need to be aware of here:

Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return.  This should be filed with the IRS annually under the Federal Unemployment Tax Act, and covers unemployment insurance and job service programs. Furthermore, the money is put into a pool to cover a percentage of unemployment benefits.

Form 941 – Employer’s Quarterly Federal Tax Return.  This should be filed with the IRS each quarter, and is used to report the amounts of tax withheld from employees’ wages during the quarter.  Any business with employees must file this form.

Form 944 – Employer’s Annual Federal Tax Return.  This should be filed annual in replace of the quarterly form 941.  Only file this return if you have been notified by the IRS in writing to file this form.

Form 2553 – Election by a Small Business Corporation.  This form is for corporations who want to be taxed as an S-corporation.  This election must be made by the third month of the tax year to be considered a valid election.   S-corporations can pass income and losses through to their shareholders.  Corporations who wish to qualify as an S-corporation should not have more than 100 shareholders.

If your business has employees, these forms must be filed:

Form W-4  – Employee’s Withholding Allowance Certificate.  All new employees are required to fill out a W-4 and submit it to you. Make sure you pay close attention to your employee’s W-4’s, which will assist you in calculating how much tax to deduct from employee’s salaries.

Form W-2 – Wage and Tax Statement.  At the end of the year, business owners must send a W-2 form to each employee and to the IRS. The form will show the employee how much he/she made, and the taxes withheld.

Form 1099 – Income Other Than Wages.  If you paid anyone who is not an employee more than $600 during the year, you must issue them a form 1099-Misc to report the income paid during the year.

Failing to file these forms correctly and in a timely manner can result in unnecessary penalties.  Stay up to date with your business taxes and make sure you are taking advantage of business deductions by working with Tax Group Center.

Failing to file these forms correctly and in a timely manner can result in unnecessary penalties.  Stay up to date with your business taxes and make sure you are taking advantage of business deductions by working with Tax Group Center.

Posted on

Tax Penalties & Penalty Abatement

You could end up owing the IRS taxes and penalties if your IRS tax returns are not filed correctly or if you do not file your return at all. Not only can the IRS assess penalties on your unpaid taxes, they also charge interest on the total of both the back taxes and penalties, which will add up quickly if not addressed.

For instance, if you file a tax return late, the IRS will charge 5% of the taxes you owe each month, up to 25% of what you owe that year. The interest that the IRS charges is calculated from the total of the original amount of the tax due plus the penalties. Interest will continue to accrue until the total amount of tax debt owed becomes unmanageable. If you can avoid the penalties, you will avoid being charged more interest as well.

If you find yourself in the unpleasant position of having the IRS assess penalties on your tax debt, here are a few things to keep in mind and some steps you can take.

Key things to keep in mind when dealing with the IRS

  • Resolution can be a complicated and time-consuming process.
  • Appropriate wording is crucial when it comes to abatement of penalties.
  • Tax professionals familiar with IRS collection procedures can make all the difference when dealing with the IRS.

Steps you can take

  • Fill out IRS form 843, Claim for Refund and Request for Abatement.
  • If you have any special circumstances that created your tax debt, such as health issues, divorce, a death in the family, or any other special circumstance, share that in writing with the IRS on the penalty abatement form.

If you have ballooning tax debt, due to excessive penalties and compounding interest, contact the Tax Group Center for a free consultation and find out whether penalty abatement is an option for you.