Economics Finance

The work of preparing and filing your tax return is relatively easier than defending your return in the event of tax audits. Around 1.5 million taxpayers face tax audit every year. There is no ideal formula to avoid tax audit but you can look out for red flags.

Here are top 10 red flags which may trigger tax audits -

1. Unreasonable deductions for home office – If you operate your business from home, you are tempted to deduct most of your spending as business expenditure. There are specific rules published by IRS to classify business and personal expenditure. If you miss out on some of them, you are inviting a tax audit.

2. Mismatching your Federal and state tax returns – If there is a difference between the incomes declared on these two tax returns, it will be immediately picked up by IRS computers and you will soon get a notice for tax audit.

3. High earnings – If your annual income crosses $100,000, it may attract the attention of IRS.

4. Excessive charitable contributions – If your contributions to charity range between 5 to 10 percent of your income, IRS feel it is a good reason to ask you explanation.

5. Mess up in alternative minimum tax (AMT) – If you are subject to AMT, you should approach a tax professional in order to avoid calculation mistakes. Even if you feel to submit AMT schedule, you become prominent to attract attention of IRS. Continue reading ‘Top 10 Red Flags Which Show the Danger of Tax Audits’ »

The IRS has many programs in place to assist taxpayers with back tax problems. The options largely consist of an Installment Agreement, Offer in Compromise (“OIC”), and Currently Not Collectible status.

Bankruptcy can be an option. But you must analyze the age and the type of the back income taxes. For the most part, recent federal income tax assessments cannot be discharged. This is also true for unpaid payroll taxes.

An OIC is another choice for you to consider. You will be required to disclose sensitive financial information. Rejection rates for OICs are high, but your chances for success will increase if you work with a tax professional. Should your OIC be rejected, there is an appeals process. Continue reading ‘IRS Tax Problem? Your Solutions to Back Tax Issues By Paul Sundin’ »

Assuming that the taxpayer agrees to the tax liability, the best way to resolve your Internal Revenue Service (IRS) back or prior taxes is to pay them in full. This would include paying the interest and penalties that have accrued since the original assessment. The penalties and interest can add up quickly since they continue to accrue until paid in full.

Unfortunately, most taxpayers can’t afford to pay their taxes in full so they must resort to other options such as an Installment Agreement or an Offer in Compromise. These programs have been established to assist taxpayers who owe the IRS.

An installment agreement is a monthly payment plan that is agreed to between the IRS and the taxpayer that is based on how much the debt is and how much you can afford to pay. Depending on the dollar amount, you may have to disclose your income and your financial position. In order to qualify, the taxpayer must be current with all tax returns. Continue reading ‘Owe the IRS? What Are Your Options?’ »

Do you think you are saving money by not filing your tax return on time? This is something that many people believe. If you have not filed your state or IRS tax return this year and you are coming off an extension you have until October 15th to file otherwise you fill face penalties and interest. If you simply have not filed for previous years, then it is in your best interests to do so as quickly as possible. Even if you cannot pay the total amount, you should still file and send in a small payment (what you can afford).

How To File Unfiled Taxes

When dealing with previous years it is in your best interests to work with tax resolution firm but this does not mean you cannot file the taxes yourself. Here’s what to do:

1) Collect All Necessary Documents – these documents include W-2, 1099, and so on. If you cannot find them, contact your former employer or the IRS.

2) Gather The Years Tax Returns You Need – If you are filing for 2007 or 2008, make sure to get the correct 1040 form if filing income taxes for the year you are filing for. You can find the correct form by searching at irs.gov.

3) Complete the Forms – In many cases tax software can help you or you can work with tax resolution firm just to review how you completed the forms to make sure there are no errors.

4) Determine if you owe taxes or if you were due a refund. Pay what you can if you owe. Most individuals, owe, and they can always work with their tax resolution firm to resolve or possibly settle their tax debt if they are faced with a significant amount. Continue reading ‘Unfiled Taxes – How to File, and Consequences If You Do Not’ »

The biggest problem with missing a tax due date is that it gets a little less stressful every day. April 15th is awful, April 16th is bad, but after a while, you might notice that the IRS hasn’t caught up to you. But after a few weeks, it fades into the background: maybe they’ll forget, maybe they filed your information for you. Unfortunately, this is rarely the case. The IRS often takes a while to catch up to delinquent taxpayers, but they definitely try to ensure that people who miss filing have a good reason to file late taxes.

The first incentive the IRS uses is that even if they’re not keeping in touch, you’re accumulating fees and penalties. There are multiple fineable offenses associated with the failure to file taxes on time, even if you do end up getting it done late, and they add up pretty fast. In addition, the IRS charges a brutal rate of interest before you file late taxes — generally, the rate is 1% per month. With your debt accumulating so fast, it’s a good idea to hurry up and slow this process down.

Once you do file late taxes, the situation improves. First, you’ll stop accumulating so many fines. Second, the interest you owe drops to about a quarter of a percentage point per month — one of the lowest-interest borrowings available to any consumer. When you file late taxes, the IRS will ask you to pay them back pretty quickly (immediately, or over a period of months), but this is also not as daunting as it might seem. Continue reading ‘File Late Taxes – How To, Why To’ »