Federal Tax Help Archives - Page 4 of 8 - Professional Tax Resolution

Category Archives: Federal Tax Help

IRS Audit Red Flags – What the IRS is looking for – Tax Tips Part 2

Posted on by

The Federal Budget Deficit is a large concern and the IRS has become more vigilant with tax enforcement.  The IRS is already paying more attention to returns that might have been passed over for an audit in years past. With more audits occurring, more and more people are concerned about making small mistakes that might flag their tax return for an audit.  Taxes are no place to falsify information but small mistakes and common practices such as rounding numbers can give an IRS agent enough reason to audit your entire return.  Doing your taxes the right way from the start is always the best advice. In part two of our three part series on Tax Tips to Avoiding a Costly IRS Audit, here is a list of additional “Red Flags” that can trigger an audit of a tax return.

What might bring your return to the attention of the Internal Revenue Service?

Income – Suspiciously Low: The IRS knows how much somebody in your field earns on average.  If you are making less than others in the same profession that raises an audit/red flag.  Also, if you have relatively low income but live in a high income area the IRS may review your return.

Income – Unusually High: Though fewer than one-percent of taxpayers are audited each year, those making over $100,000 are 500% more likely to be audited.

Income – Failure to Report:   If you file a return but fail to report ALL the income you received, you’ve run up an audit/red flag. All of your wages, interest, dividends, capital gains and miscellaneous income must be reported to the IRS. The IRS receives copies of ALL W-2 and 1099s and computers match these records  

Income- Large Swings:. The IRS believes that your income should be consistent from one year to the next. If there are large changes in income, that cannot be backed up by your 1099s or W-2s, this is a audit/red flag.

Itemized Deductions – Too High:  Any deductions outside of the “average” will release a audit/red flag. So, watch out if you have a lot of itemization such as (Medical or Dental Expenses)(Taxes:, Real Estate or Personal Property) (Interest: Home Mortgage, Points or PMI-Insurance Premiums) (Gifts: Cash, Check or Fair Market Value of Donated Goods) (Sizable Casualty or Theft Losses) (Unreimbursed Employee Expenses)

Itemized Deductions  – Charitable Non-Cash – Over $500:  If you don’t get an appraisal for donations of valuable personal property or if you fail to file Form 8283 for donations over $500 an audit/red flag appears. Taxpayers are entitled to claim a deduction for the fair market value of the property donated NOT the original cost. For the current Fair Market Value,  there are two free tools at your disposal: ItsDeductible, from Intuit, and DeductionPro, from H&R Block

Itemized Deductions – Overly Generous Charitable Contributions: Charity is wonderful, but too much charity could be audit/red flag. If the average person in your income bracket donates about $500 to charity and you claim you donated $5,000 you better have detailed and accurate receipts.

Itemized Deductions – Employee Job Expenses: .The IRS starts with the assumption that if an employer doesn’t reimburse a specific expenditure made by the employee that expenditure is probably not a true job expense. Consequently, the mere existence of a Job Expense will cause an IRS red flag.  So,  if you are a W-2 employee you must meet the following guidelines: total of all expenses exceeds two percent of your adjusted gross income; the expenses are deemed “ordinary and necessary”; and the expenses were not reimbursed.

These tax tips are just examples of the type of the proactive, year-round tax guidance we provide to our clients. We have more we want to share with you about IRS Audits so look for our third and final installment of Audit Red Flags in the coming days. 

If you need to file your 2011 or earlier tax returns, or have an IRS or State Tax problem, our experienced tax professionals can help. For more information about our tax services, visit us today at www.professionaltaxresolution.com. You may also Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

IRS Back Tax Tips – Help with Late Tax Bills – Pay Your Tax Debt

Posted on by

Did you receive an IRS notice that you owe back taxes? While owing money can be a big worry, ignoring the problem will only make things worse. There are options to pay your tax debt, even if you can’t do it all at once.

If you need help with tax resolution because you owe back taxes, you can take advantage of different methods of payment or request that the payments be broken up into installments. Here are some tips:

  • A late tax bill from the IRS is expected to be paid promptly, including the taxes owed, penalties, and interest. You may want to get a loan so you can pay it in full to avoid making installment payments if you do not already have the money ready. A bank loan could have a lower interest rate than what you would have to pay in additional interest and penalties.
  • Tax bills can be paid via credit card. Your credit card could also have a lower interest rate than what you would have to pay in additional interest and penalties.
  • Tax bills may also be paid through checks, money orders, cash, cashier’s checks, or electronic fund transfers.
  • If you are unable to pay in full, you may be eligible to request an installment agreement between you and the IRS. The agreement would break up the amount due into monthly installments. Make sure that your required returns are all filed and your estimated tax payments are current.
  • You can request installment payments whether your tax bill is over or under $25,000. You should be informed within roughly 30 days if the IRS approves or denies your request, or if they need more information.

If you receive a late tax bill, our experienced professionals can help you resolve your back tax issues. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

Tax Tips for 2011 – 6 Last Minute Tax Saving Tips

Posted on by

This time of year, clients call for last minute tax guidance that will help them maximize their returns. While we advise our clients on a year round basis – not just at tax time – here are a few last minute tips you might find helpful.

Here are a few things you can do in the next couple of days that may save you some 2011 tax dollars:

1) Make a charitable contribution.
If the last minute contribution is for more than $250, it must be documented by a contemporaneous acknowledgement from the donor organization.

2) Make a contribution to an IRA, 401(k) or other retirement account.
Most retirement plans actually give you up until April 15, 2012 to make a contribution as long as you designate that the contribution should apply to the 2011 Tax Year.

3) Fund a Health Savings Account or a Medical Savings Account.
The money put into these accounts is tax deductible up to certain limits and is not taxed when it is taken out as long as it is used for medical expenses. Any funds put into either of these account types before December 31 can be counted as a tax deduction for 2011 even though will not used for medical expenses until 2012. At the end of each year, money in these savings accounts that has not been used to cover medical expenses during the current year can be rolled over for use during the next calendar year.

4) Pay your 2011 State Income Tax.
Although the deadline for paying your 2011 State Income Taxes is April 15, 2012, the State Income Tax Deduction can be claimed a whole year earlier if the payment is made before December 31.

5) Consider selling investments that are down if you have sold investments that have shown gains in 2011.
Although the entire amount of capital gains is taxed during the year they are realized, the maximum yearly deduction for capital losses is $3000. However, any capital gains realized during a calendar year can be offset by capital losses posted during the same year. This tax law essentially allows you to increase the allowable capital loss deduction by the entire amount of any gains realized during the same year.

6) If you own a small business, consider making equipment purchases.
A special tax code makes it an advantage to purchase business tools and equipment before the end of 2011. Although the cost of a capital expenditure usually must be depreciated over the predicted life of the equipment, a special tax code allows you to deduct the full amount of a purchase, up to certain limits, in the calendar year it is made. (https://boxmining.com/) This amount is $500,000 for 2011 but will drop to $139,000 in 2012 and then to $25,000 per year.

If you need tax advice, contact us at (877) 889-6527 or by email at info@protaxres.com for a free, no obligation consultation with a CPA today.  If you already owe a tax debt or are simply trying to avoid incurring tax debt in the future, our experienced professionals can help. Click the links for more information about our tax planning and preparation and  tax debt resolution services.

IRS Tax Code and Money Earned Abroad – Could it Change?

Posted on by

Money earned abroad by American corporations is free from U.S. taxes until it is returned to the United States. However, once these foreign earnings are repatriated, they are taxed at a rate of 35%. The current tax code allows multinational companies to avoid this tax, but only if they invest in certain domestic assets such as bank deposits, stocks and bonds. If the foreign earnings are reinvested into the companies themselves, they are taxed at the corporate tax rate of 35%. Currently, a group of multinational companies who have joined together to form what is called the Win America Coalition, is lobbying Congress to reduce the tax rate on earnings they bring home from overseas. This group of companies, which consists mainly of the Silicon Valley technology giants together with some pharmaceutical companies, is asking for the tax rate on repatriated foreign earnings to be reduced from 35% to just over 5%. They claim that a reduction in the tax rate would increase hiring and stimulate job growth by allowing companies to invest in themselves. While some members of both major political parties are in favor of such a tax cut, others are against it. The pros and cons are outlined below.

Reasons for favoring a tax cut on repatriated foreign earnings:

• Due to a flawed U.S. tax code, profits of U.S. companies continue to be invested around the world instead of at home.

• Even though companies are allowed to keep funds earned abroad in U.S. banks, they are not able to put the funds to work in the U.S. economy without being subjected to a 35% tax rate.

• Reducing the tax rate for repatriated funds earned abroad would inject billions of dollars into the U.S economy, thus creating jobs.

Reasons for opposing a tax cut on repatriated foreign earnings:

• Domestic companies that do not have overseas operations say it is unfair to give multinational companies a lower tax rate.

• Some analysts say that job growth created by a tax cut would be lower than some estimates predict because foreign earnings are already invested in U.S. stocks and bonds and deposited in U.S. banks.

• Independent tax analysts have said that when a similar tax cut was initiated in 2004, most of the repatriated funds were spent on shareholder dividends, stock buybacks and executive pay rather than on any type of expansion that would have created jobs.

According to recent report by the Senate’s Permanent Subcommittee on Investigations, large multinational companies are already investing nearly $250 billion in United States financial institutions in order to avoid paying the 35% tax rate on repatriated foreign earnings. The question is whether a reduction in the current rate would promote changes in the distribution of these funds that would be beneficial to the economy.

Do you have a tax planning or preparation question?  Are you thinking about your 2011 taxes and want to avoid owing the IRS a tax debt?  Call for a free, no obligation tax consultation with our CPA’s today (877) 889-6527 or email us at info@protaxres.com

Start of 2012 with clear and accurate tax advice – contact us today!

 

Have IRS Tax Debt? Need a New Passport? The GAO wants to know.

Posted on by

As of the end of fiscal 2010, the balance of reported unpaid federal taxes was about $330 billion according to the IRS. This is a huge amount and as we have written about in the past, the enforcement of the tax laws and the tax code is on Government Accountability Office’s list of high-risk areas.  The deficit being what it is it may come as no surprise that the GAO was asked to investigate, by cross referencing unpaid federal taxes and passport issuance, the magnitude of known unpaid federal taxes for individuals who were issued passports.  Selecting a past year, the GAO did a study for the fiscal year 2008 to identify examples of passport recipients who had known unpaid federal taxes.

They study discovered that individual states issued passports to about 16 million individuals during fiscal year 2008 and that of these, over 224,000 individuals (over 1 percent) owed more than $5.8 billion in unpaid federal taxes. That is JUST those individuals who got new passports in 2008 – not all passport holders.

Does that come as a surprise? Currently each state is not authorized to restrict the issuance of a passport to an individual because they owe federal taxes. In addition, federal law does not permit the IRS to disclose taxpayer information, including unpaid federal taxes to State officials unless the taxpayer consents. The reason this is at least somewhat surprising is that in contrast, federal law does permit certain other restrictions on the issuance of passports to individuals, such as for those individuals owing child support debts over $2,500.

Really, the problem is likely far greater than 1% of the newly issued passport holding population.  In addition to the obvious population balance of all valid passport holders for the studied year of 2008, the estimated amount of unpaid federal taxes was actually likely understated because it excluded individuals who had not yet filed tax returns or who had underreported income.

Making matters harder, individual States currently cannot compel a passport applicant to provide a Social Security Number (SSN). Because the IRS uses the SSN to identify each taxpayer, without an SSN you cannot match an individual back to their IRS data.

This study had produced such alarming results already and the GAO wanted to know a bit more. They took the 2008 study and dug deeper into the backgrounds of a very small group of just 25 passport recipients. Clearly this is a tiny study and cannot be reflective of the population as a whole. That said, some pretty interesting things were discovered.  When investigating for abuse related to the federal tax system or criminal activity, of these 25 cases, at least 10 passport recipients had been indicted or convicted of federal laws! In addition, the IRS had assessed trust fund recovery penalties on several passport recipients; a penalty which is applied when an individual does not remit payroll taxes to the federal government.  How does someone fall behind on Payroll taxes?  Instead of acting appropriately as the trustee of an individual employee’s withholding and forwarding it onto IRS, they divert the money for other purposes. Using payroll taxes is a big crime; in fact the willful failure to remit payroll taxes is a felony underU.S.law.

In this smaller study of the 2008, of those 25 new passport holders, some had accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, all while failing to pay their federal taxes. In fact, of the 25, at least 16 passport recipients traveled outside the country all while owing federal taxes and another 4 passport recipients actually resided in another country at the time! Worse yet, two individuals used the identities of deceased people to fraudulently obtain passports in the first place and then used the passports to travel toMexico,France, and Africa. Ironically in one case, the unpaid tax debt belonged to a deceased individual and in the other; the debt was actually incurred by the imposter.

If this small study is any indication, there appears to be a big opportunity to crack down on passport issuance for those who owe federal tax debt. Although nothing official has been implemented to date, Congress could pursue policy to link federal tax debt collection and passport issuance by enabling States to screen and prevent individuals who owe federal taxes from receiving passports.  This would require transparency and more communication between the IRS and the individual States, but it seems that the opportunity to collect unpaid tax debt would be greatly improved as a result.

 

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com for more information about our customized tax settlement assistance. The CPAs and tax professionals at Professional Tax Resolution use their extensive knowledge of the tax code to provide taxpayers with the best settlement option available. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to learn more about our services and to receive a free, no obligation consultation.