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Categories: Advice

7 IRS Triggers

As we have written previously, IRS audits have significantly increased.  Having an audit is not fun.  It can consumes a lot of ones time and money if you hire a professional to represent you.  We seen a lot of audits which in our opinion shouldn’t have been triggered but because the tax return has a certain trigger the taxpayer has to deal with it.  To often we see sloppy mistakes that taxpayers and tax preparers make which triggers the audit.  So review these items and consider if your tax return should be done differently or by a different person if you have any of these items.

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Identity Theft with US Tax Returns

It is amazing and shocking to see how our identity can be stolen.  We have noticed over the past five years, that there has been an increase of income tax return problems because of identity theft.  Generally we as a CPA firm first notice there is a problem when try to electronically file a tax return and the government computers tell us the return has already been filed.  We immediately inform our clients, and proceed in filing out a lot of paper work with the IRS and state governments.  This can cause the taxpayers some real problems.  First if there is a refund, the refund is held up typically for six months or longer.  Yes, the IRS will pay you interest, but you don’t have your money.  Next, if the taxpayers are trying to get a loan, the mortgage company will not be able to verify the tax return with the IRS as the return is in a state of flux. 

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Tax Tips for Recently Married or Divorced Taxpayers

Most individual tax returns are electronically filed.  If your name and social security number doesn’t match, the IRS computers will not accept the electronically filed tax return.  Name mismatches cause problems with refunds also.  The Social Security Administration (SSA) should be notified of a name change resulting form marriage or divorce by filing form SS-5 which is available at www.socialsecurity.gov

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Tax Deduction for Meals

Typically business expenses for meals and entertainment are only 50% deductible for income tax purposes.  The goverment feels that the taxpayer receives some enjoyment, so only 1/2 is deductible.  However, please note that means furnished to employees can be 100% deductible persuant to Internal Revenue Sectoin 274(n).    We discuss this law all the time with our clients.  These sorts of meals should be tracked seperatly on the taxpayers general ledger.  So meals that our brought into the business or delievered and the food is for the employees would qualify as 100% deductible.  Don’t forget this one when you are preparing your tax returns.  

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Employee or Independent Contractor?

Is the person working for you an employee or independent contractor?  This question comes up often. Typically start-up businesses will want to treat as many workers as possible as independent contractors, so they don’t have to deal with payroll taxes, and other fringe benefits. However, is this approach correct?  The IRS would rather has every worker treated as an employee as they would receive more payroll taxes which include social security and medicare. Also the employer is required to withhold federal and state income taxes and remit them to the government.  Well this topic has been discussed often.  For a starting point, review the IRS website at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html.  This will provide you with a brief understanding of the issue and links to other related areas.

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Are those emails from the IRS real?

Many of our clients and I’m sure a lot of other taxpayers have received emails from the IRS.  Well, I’m here to tell you ignore them.  They are not real.  The IRS does not make initial contact with any taxpayer or tax advisor through email.  The IRS has been communicating this statements since 2006.  Read the link to the IRS website below.  The IRS does have email, but they barely even use it with tax professionals due to these sorts of issues and for security purposes.

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IRS Audits Increase

IRS Audits Increase. Be prepared so the experience isn’t bad. Over the past year, we have seen a large increase of IRS audits.  We expect the audit increase is due to the fiscal problems / budget problems with the United States of America.  So, on one hand Congress is saying we are here to help and on the other hand, they are telling the IRS to find more money.  So be prepared.  We are seeing IRS audits for the following items:

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