Posts Tagged ‘Tax law’

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!

Similar Questions – Different Answers

September 21, 2013

Groucho SmartOn the surface, the questions “Can I deduct it?” and “Is it deductible?” seem very similar.  They are not.

“Can I deduct it?” means that a person has enough guts to put it on their tax return and risk the consequences if they are wrong.  It does not necessarily mean that there is any legal support to take the deduction.

“Is it deductible?” means the same as “Is there any legal justification for taking this deduction?”  A whole different question.

Many people get tax advice from “interesting” places – party talk, their stylist, realtor, mechanic, business associates, at church.  If you do get tax advice from those sources, be certain the person knows the actual tax law and have not just heard it somewhere then had the guts to deduct something on their own return.

Although a heart surgeon and a motorcycle mechanic both understand how systems work together to make a unit operate properly as a whole, I’m not letting my mechanic do heart surgery.

But I’m just funny that way.

An Ounce of Prevention

August 3, 2013

Ounce of Prevention

I was at an IRS Appeals hearing the other day and the Appeals Officer made an interesting comment to me.   He said “You know, we disallow more deductions because the person could not provide substantiation for the deduction than we do because they could not establish a business purpose.”

That got me to thinking that most people spend more time and energy wondering what they can deduct instead of documenting what expenses they do have.

We understand that you may not know all the things you can deduct.  The tax law is complicated and it changes every day.  Even a “Tax Expert” learns new things as the law changes or is reinterpreted.

So if you are unsure as to whether or not you can deduct something, go ahead and keep the receipt and record it.  If you later find out that you could have deducted that expense, then you may not be able to because you don’t have the records.

On the other hand, if you find out later that you cannot deduct that expense, there is not harm done.   Just remove the receipt or reclassify the expense as a personal expense.

As Ben Franklin once said  “An ounce of prevention is worth a pound of cure.”

 

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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 http://www.MyTaxBuddy.com


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