Posts Tagged ‘IRS’

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!

So They Paid You In Cash

October 10, 2013

Pay in CashSo your customer paid you in cash.  For some businesses that is a time to celebrate because they feel that they don’t have to report cash.  Notice we said “feel” and not “THINK”.  Let’s look at the bigger picture here and really THINK this through.

Section 61 of the Internal Revenue Code (yawn) clearly states that “… gross income means all income from whatever source derived”.  That is the law.  If it comes through your business, chances are it is gross income and should be reported.

Well, you say, I like to push the limits.  I drive over the speed limit, but not a lot.  A few bucks never hurt anyone.  That is what you tell yourself.  Rational Lies.

Consider this.  If your internal controls (or lack of them) are so loose that it is easy for you to take out cash without running it through your books, then perhaps your employees feel that they can do the same.  I mean, if you skim cash from the business then it must be OK for them to do it.  Is that really OK with you. I seriously doubt it.

Then let’s go to the extreme.  You get comfortable not reporting income and  the numbers start getting bigger and bigger.  Then the IRS comes in and they decide that they are going to make an example out of your case and prosecute you criminally for income tax evasion.  First, you will incur lots of attorney and accountants fees because, as the old adage goes, “the lawyer that represents himself has a fool for a client”.

Then you will probably go in front of a jury of your peers.  Now most of these “peers” on the jury are probably  W-2 employees and not in a position to omit any income from their tax return. They will NOT understand nor appreciate that you are trying to get away with it.  They can’t so why should you.  Guilty.

There is nothing wrong in being aggressive with your taxes.  But ask yourself, is it really worth the risk.  If you are going to take a risk, at least look at the downsides.

And also remember – Pigs get fat.  Hogs get slaughtered.

Nobody Home at the IRS

October 1, 2013

Govt ShutdownWell the Government has closed its doors for who knows how long.  That means the IRS is also closed.  That’s the good news and that’s the bad news.

The good news is that there is nobody home in the audit and collections departments.  Which means there will be a temporarily halt to phone calls and letters telling you “I’m with the IRS and I’m here to help you.”

The bad news is that there will be no refunds issued while the lights are off.  Also the clock marches onward toward the October 15 due date.  And there is nobody at the IRS to answer your questions. So, we recommend that, if you do have a question, go to Google or Bing or your favorite search engine or even if you want to get advice with an IRS slant.  You can also call your tax professional.

We are not certain what to tell you if the IRS has given you a deadline to take some sort of action.  If they want a payment by October 5, then I would do my best to make that payment even if the government’s doors are closed.  Most times, ties go in favor of the government so be certain that you know the risks you might be taking.

As we understand it, the IRS computers will still be functioning so you can still e-file.  We hope.

So until the IRS opens its doors again, enjoy a little peace and quiet.  But remember, they are not going away forever.

Oh yeah. I’ve got it.

August 16, 2013

I Got ItWhen the IRS calls and decides that they want to audit your business records, you will want to be sure they are credible long before you get “the letter.”

Credible means that you have receipts and other documents from your suppliers and vendors along with your notes made “at or near” the time of the activity.

And when the Auditor or Agent asks for something, you will want to be able to say “Oh yeah.  I’ve got it.”  That way they know you have excellent records and it could significantly shorten the length and intensity of your audit.

If you have to go home and “find” the records, there is a question as to the accuracy and authenticity because you might have created the records after the IRS asked for them (not that anyone would do that, of course).  Herman Wouk once said “Income tax returns are the most imaginative fiction being written today.” Don’t let this be your return.

Vehicle deductions , travel and meals must also be documented and logged.  The information required for these deductions are specifically referenced in the Internal Revenue Code and are a favorite target of the IRS because most people don’t know what is required and don’t have the required records.

We had a client that thought they didn’t need to keep receipts because they had entered the information into their accounting program.  The IRS disallowed thousands of dollars in deductions because those third party records and the proper notations were not available on the first appointment. And the IRS Agent camped out at our office to check almost everything.

Don’t let this happen to you.  Keep good business records and keep them now to maintain your tax deductions.  Credible records don’t happen by accident.

If you are looking for a simple online record-keeping system that you can use from your smartphone or computer, may we recommend our simple system –  In the time it takes to answer an email, you have done your tax recording.  So simple you can start right now.  Don’t put it off and pay more tax because of poor records or no records.

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