Posts Tagged ‘IRS Audit’

When Should You File Your Tax Return?

January 7, 2014

IRS ReturnThe IRS announced that it would begin accepting individual tax returns (Forms 1040 and 1041) on January 31, 2014.  Business returns (Forms 1120, 1120S and 1065 ) will start being accepted on Jan 13, 2014.  Unincorporated businesses that report their income on Form 1040 Schedule C, Schedule E or Schedule F are not included as business returns so the January 31 date applies.

When is the best time to file your tax return?  There is a simple answer.  That depends.

Many people want to file their returns early to get their refund back as soon as possible.  That is one consideration.  If you have a simple return and really need the money this is probably a good strategy for you.  And yet there are other considerations.

The earlier you file your return, the more months the IRS has to decide if there is something that needs further explanation.  More months of exposure to IRS examination.

And the later you file, the more returns are already in the audit pipeline when yours arrives.  This may reduce your audit exposure (but no guarantees).  Many of our clients pay their tax when they file their extension on April 15 but wait until October 15 to file the actual return for this very reason.

Look at all your personal factors and then decide what is best for you.  If you have a question, contact a tax professional.


Are You Ready?

October 23, 2013

Selected for AuditOur tax software vendor just let us know that “According to IRS tax gap studies, small businesses account for 40% of the $450 billion annual loss in tax revenue to the US Treasury, largely due to the under-reporting of income and overstating of credits and deductions. As a result, the IRS focuses much of its audit activity on small businesses, especially in field audit examinations.”  Let’s see, 40% of $450 billion (with a “B”)…that is not pocket change.

However, this is really not surprising.   Small business has always been a prime target for the IRS.  Many times the business owner is good at creating and delivering their product or service but not quite as good at the administrative side.  So if you were the IRS, would you audit a well-prepared business that  has their records in perfect shape and understands the tax law or would you go after the under-prepared small business owner.  Hmmmm.  Let me think.

The IRS will tell you that their goal is to determine the correct tax liability (whatever that means).   However, if they can disallow a deduction because of bad records or no records, it is much easier and faster than spending hours going through records and arguing tax law with a Taxpayer or their representative.

I had an IRS Appeals Officer once tell me that more deductions were disallowed because of inadequate records than for tax law interpretations.  This has been the case since I was an IRS Agent and will probably continue until people learn to keep better records.  The most frequently disallowed deductions are vehicle expenses, meals & entertainment and travel simply because the required documentation is clearly defined in the Internal Revenue Code (The Law).

Are you ready for an IRS Audit?  You only have one chance with the Auditor to show the credibility of your records.  If you fail that first impression, you should prepare to spend a lot of time with the Auditor and write a sizable check at the end .

Records don’t have to be complicated to be credible.  Ask yourself “Am I willing to spend a little time on keeping records NOW that will save me considerable money and time in the future?” Good records can also  significantly add to your peace of mind.  Priceless.

MyTaxBuddy is a simple-to-use system that you use from your smartphone, tablet and computer and provides complete, IRS-credible records for all your income, activity and expenses, all in one place.  Having all the pieces required for travel, meals & entertainment and vehicle mileage documentation is not difficult if you can remember it all.  We provide the structure. MyTaxBuddy is as simple as using an online calendar.   If you start today it could save your bacon when the IRS comes calling.  That is why we are your Buddy!

Good Records – Timeless Advice

September 3, 2013

Luca Pacioli Luca Pacioli*, the father of modern accounting,  wrote:

“If you are not a good bookkeeper in your business, you will go on groping like a blind man and may meet great losses.”

Not only that, but you are dead meat in front of an IRS Auditor.

You don’t need to be an accountant, bookkeeper or tax expert to have good documentation.  The best records system for you is the one you will actually use.

If you have been telling yourself, “One day I will start keeping better records” and then you put it off (yet again), we invite you to visit for a simple and yet flexible system.

Good tax records can support your tax deductions which could gift you with hundreds or thousands in tax savings.

Make today the day you stop your worry and begin gaining deductions.

Listen to Father Luca.

*Luca Pacioli – a 15th century monk, Father of modern accounting and Leonardo DaVinci’s mathematics teacher.  The above quote is from In The Rules of Double-Entry Bookkeeping ( Particularis de Computis et scripturis).

IRS Questions Small Business Income

August 11, 2013

Rising income

The IRS has been sending out letters to small business owners that they may have under-reported their income. This is the same kind of letter that you might get from Publishers Clearing House – You may be a winner.  But you had better respond to the IRS letter.

Since the credit card companies have been issuing Forms 1099K to report the amount of money customers have paid by credit card, the IRS has been using these numbers to compare to data on the tax return.  Is the amount charged above or below the norm for this type of business?  Is there enough non-credit card sales reported?

This can obviously cause problems, especially if your customers want cash back in the charge transaction.  Now the business has a charge for more than the amount of the actual sale.  This could cause problems when IRS is doing their comparisons.  And requires a new level of record-keeping nightmare for the small business.

Always report all of your income.  Always.  As a worst case scenario, if the IRS took you before a jury of your peers to determine your guilt or innocence, many of the jurors will be employees and have no way to under-report their income.  However, I would challenge you to find 12 people who have never pushed a deduction.

Thoughtfully prepared records are your first and best line of defense with the IRS.  The better your records, the shorter your audit.

If you choose to be aggressive, do it on the expense side. (We are not making any recommendations here.  Aggressive tax positions are a personal choice.)

Just remember this – Pigs get fat.  Hogs get slaughtered.

A Big Difference Between Tax Avoidance and Fraud

July 17, 2013

In Tampa, the self-proclaimed “Queen of Tax Fraud” just got sentenced to 21 years in prison.  Part of her downfall was posting pictures on Facebook.  Really? Talk about playing with fire and getting burned!

There is a huge difference between tax avoidance and tax fraud.  The tax law is written in words and words are subject to interpretation. And there is nothing wrong with interpreting the law in your best interest.   The highly respected Judge Learned Hand (1872-1961) once wrote  “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”  But total disregard of the law and stealing records and money, that’s a different story.  That is stealing from the Government which ultimately gets their money from us.  So she was stealing from us.  And bragging about it.

“The Queen’s” sentence was based on the calculation that she had stolen $3.1 million.  Not just a minor clerical error.  Investigators later determined Ms. Wilson stole between $7 million and $20 million.  Also, not just a minor clerical error.

You can be conservative or aggressive, at your option.  Either way, make sure that you can support all your deductions by keeping good tax records.  An IRS Appeals Officer once told me that, for small businesses, more deductions are lost because of lack of documentation than for incorrect interpretation of the tax law.   Don’t let this happen to you.  For a simple solution for complete tax records, visit

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