While the payment of income taxes is an inescapable obligation, most other tax debt is the result of simple omissions or other basic filing errors that could easily have been avoided. Many taxpayers who contact our firm are not requesting assistance simply to meet their tax obligations for the current tax year. More commonly, they are seeking professional help to resolve complex tax debt situations that have been developing over multiple years. While the initial tax debt may have been the result of a simple mistake or unreported item, it has often been compounded over time by the addition further taxes, penalties and interest. It is not uncommon for penalties and interest, which are often applied retroactively when the IRS or state tax agency makes an adjustment to a return from a prior year, to account for as much as 50% of an outstanding tax debt balance.
The most obvious way to avoid an escalating tax debt is to not incur the debt in the first place. While this may seem obvious, it is easier said than done. Tax law is difficult to understand and the policies and procedures of the IRS are complex and often confusing. The following tips may be helpful in getting a tax return filed correctly the first time, thus avoiding problems with the IRS down the road.
Provide complete information. Answer all questions and provide all required information on each form and schedule submitted with your return. Missing information could trigger a more extensive look at your tax return.
Pay attention to details. Carefully proofread your return to make sure all personal and financial information has been entered correctly. If the return is being prepared by hand, check all mathematical calculations for accuracy. Mathematical errors or incorrect entries of Social Security numbers or tax identification numbers can easily trigger an inquiry into your return.
Report all sources of taxable income. The IRS uses document-matching software to compare information on W-2’s and 1099’s to the income reported by taxpayers on their returns. If any of the information does not match up, it will lead to an adjustment by the IRS and may even lead to an audit of the return.
Change your business status. IRS statistics show that a taxpayer who files using a Schedule C is ten times as likely to be audited as one who forms a corporation or elects S corporation status. While there are costs associated with incorporation, the move affords greater personal liability protection and reduces the chances of being audited. In deciding whether to change your business status, both tax and non-tax factors should be considered.
Choose your tax preparer with care. According to the recent National Taxpayer Advocate report, 60% of individuals and an even higher percentage of businesses currently use paid preparers to complete and file their income tax returns. If the IRS believes a preparer is claiming unwarranted deductions or making other fraudulent claims on clients’ returns, the preparer’s clients are at risk for audit. For this reason, it important to select a qualified tax professional who is honest and ethical as well as experienced and knowledgeable. To insure that an individual meets these qualifications, it is a good idea to verify their current licensure with the state certification agency and the Better Business Bureau. It is also advisable to check a tax professional’s history to see if there has been any disciplinary action (For a CPA, this can be checked on the state’s website) and to review references if any are available.
Visit us today at www.professinoaltaxresolution.com review our professional qualifications and to learn more about our services. We can help you meet your tax obligations for the current year or resolve an existing tax debt situation. Receive a free, no obligation consultation by contacting us today at (949)-596-4143 or info@protaxres.com.
