We are getting closer to yet another tax season and you need to start getting organized to file and pay your income taxes to the United States Treasury and in order to make your waiting and processing period shorter, make sure you take all your necessary documents to your tax preparer or accountant such as W2’s from all your employer, 1098 interest statements from your mortgage company, your check book if you plan a direct deposit for your refund, social security cards or ITIN’s for you, spouses and dependent children, and most importantly, bring your spouse for signatures.
The US Congress and IRS are planning to reduce, as soon as possible – through audits, what they call the “TAX GAP”,which is the amount of tax that is not collected every year due to fraudulent tax returns and tax evasion by moral or physical entities. In other words, they will be watching closer and auditing more returns than before in faster periods of time.
We have to remember that 2007 and 2008 Tax Years were aggressively audited by the IRS, especially S Corporations and service tipped employees in casinos, restaurants and beauty salons, so don’t be surprised if it gets easier or more common to be audit than a few years back.
1099 Independent Contractors were also audited, especially sales persons who tend to deduct more than real expenses to avoid paying 15.3 percent of Self Employment Tax.
If you are a tipped employee, your responsibility to make sure that all tips are correctly reported on your W2’s by your employer, and if they are not reported correctly, we have to advise our tax preparer so the correct amounts are reported in the total gross income of forms 1040.
For clients that file their income tax return with a 1099, make sure that the adjusted gross amount on the tax return is enough to cover for your day to day expenses, including mortgage, tax payments, tuition, utilities and such, otherwise your return might be examined and you might be questioned on how you survived with an income less of your total annual expenses. During the audit, the IRS agent will check your bank accounts for cash and checks deposits, and all your expenses as reported, you will be charged with underreported income and the agent will disqualify some of your expenses – at the end you will be required to pay the difference in taxes with penalties and interest.
Remember the auditor or examiner works under the tax code regulations and all the answers to his questions have to satisfy the law or they get disqualified – The Auditor is always right unless you can prove otherwise.
Not all the forms required are ready at the beginning of January and E File does not start until after January 9, so before you go, make sure your tax preparer is ready to take you in to prepare you tax returns.
Many companies offer rapid refunds with the last paycheck from your employer, but you also face the risk of error and getting audit by the IRS since they’ll know the return was filed too soon and there might be mistakes, omissions or fraud.
The more complicated your tax return is, the more important it is to find an experienced professional to prepared your forms to avoid problems and penalties one or two years later.
Please also remember also that if you go to an office that only opens four or five months a year and you are faced with an audit, you are not going to find anyone to help you or represent you in front of the IRS.
Don’t take the risk of getting audited by looking for a preparer that “gives you more” when they prepared your tax return but make sure that you have all discounts and deductions allowed by law.
Before you sign, asks questions and feel comfortable with all your deductions.
Have a great tax season.